The 80-20 Rule – Pareto Principle

Pareto Principle Option 2
Pareto Principle (Photo credit: Sleepy Valley)

 

What is the Pareto Principle? It basically means that 80 percent of your outcomes come from 20 percent of your inputs. As Pareto (The 80-20 rule was named after the Italian economist Vilfredo Pareto. He noticed that 80% of income in Italy was received by 20% of the Italian population) demonstrated with his research this “rule” holds true, in a very rough sense, to an 80/20 ratio, however in many cases the ratio can be a lot higher – 99/1 may be closer to reality.

It really doesn’t matter what numbers you apply, the important thing to understand is that in your life there are certain activities you do (your 20 percent) that account for the majority (your 80 percent) of your happiness and outputs.

If you look at your life, I am sure you will be able to find many examples of the 80-20 rule. You probably only engage with a few people on Facebook compared to the entire number of friends you have on Facebook. A large chunk of your money probably goes on a fe major items such as rent/mortgage, food and energy bills.

Think about what your passions are – the stuff you love doing. I love blogging and learning new things but I am less keen on the analytical side such as adwords and keyword management or google analytics. As soon as I can find someone else to do them for me, I will!

Start thinking about the activities you engage in that bring you the most money. Focus on bringing more of that into your daily routine and filtering out the superfluous activities that take up time but are not profitable.

In truth, and this is a sad fact, most people in the world work jobs they don’t like and only truly live their passions on weekends and outside of working hours. Only a small sample actually live their passions day in and day out, how they want to and when they want to. If you want to become one of the special few so you can live your passions on your terms there are a few things you can do.

1) Focus on what you love doing –

when you are passionate about something it brings out the best in you and if you get to follow your passions and make money from it, you will be one of the few people enjoying a good quality of life. If financial freedom is important to you and a big part of your plans look at this step as phase one and work to convert your passions into income generating propositions. Grow your business client-by-client, gig-by-gig or sale-by-sale. keep adjusting your work vs passion time ratio as your business grows to support you and you no longer need your job income. Look for 80/20 activities in everything you do and drop any inefficiencies as soon as you can.

2) Give back to others –

think about what you consume from others. Do you enjoy a film (something some one else has created), do you enjoy eating at restaurants – (culinary delights some one else has created). Now consider what you give back for others to enjoy. What is the value that you give back? Only by producing output for other people to enjoy or make practical use of can you expect to convert a passion into a sustainable income. You should understand this already as I suspect the times in your life that you have created something for others or worked on something that benefited other people you experienced the most fulfilment. You won’t find fulfilment only by consuming.

3) Don’t let fear get in the way –

Never let fear stop you from trying new things. It’s okay to take calculated risks. Put enough money aside and then live fugally while you foster your passion. You’ll be in the top ten percent of people that actually DO something about their dreams and goals.

If possible, clear away the more trivial chores by hiring help. Craiglist Philippines is a good, cheap way to outsource – have a look into it.

Take time out to clear your mind. Spending too much time in “full on” mode will have long term consequences.

The value of the Pareto Principle is in reminding us to stay focused on the “20 percent that matters”. Of all the tasks performed throughout the day, one could say (based on Pareto’s Principle) that only 20 percent really matter.  Those tasks in the 20 percent very likely will produce 80 percent of our results.  Thus, it’s critical that we identify and focus on those things.  When the fire drills surrounding the “crisis of the day” begin to eat up precious time, remind yourself of the critical 20 percent you need to focus on.  If anything in the list of activities and action items has to fall by the wayside – left undone – be sure it isn’t listed in that critical 20 percent.

Mandy X

References:

http://www.entrepreneurs-journey.com/397/80-20-rule-pareto-principle/

http://www.pinnicle.com/Articles/Pareto_Principle/pareto_principle.html

Enhanced by Zemanta

Mandy Kloppers
Author: Mandy Kloppers

Mental healthblog run by Cognitive Behavioural Psychotherapist. Mental health blog covers Cognitive Behavioural Therapy. Psychology and relationship counselling.

You may also like...