Optimize resources: apply the 80/20 principle to your savings
The 80/20 principle can dramatically improve your life while maximizing your success – you can interpret it as the science of making the most of what you do, with as little effort as possible.
The 80/20 principle – also called the Pareto Principle – is a concept attributed to the Italian economist Vilfredo Pareto , who in 1896 realized that 80% of the land in Italy was owned by 20% of the population: this data has piqued his interest, for which he analyzed other countries and found the same distribution elsewhere, which led him to formulate the now famous aphorism:
In a nutshell, the 80/20 principle states that 80% of the result comes from 20% of the effort.
What does it really mean?
It means that if you have a business, 80% of your revenue is likely to come from 20% of your customers.
It means that if you are a student, 80% of your basic knowledge will probably come from 20% of the lessons you have taken.
It means that 80% of the world’s money is earned and held by 20% of the population.
While it’s not a hard math rule, the 80/20 principle is perfect for anyone who needs to tidy up financially and cut deadwood – be it funds and stocks, but also bad financial habits.
How can this principle improve my finances? You should start looking at this rule as a “barometer” for your income and expenses , which can help you define the best way to manage your money.
Your savings rules
Following this concept, 80% of your savings will come from the 20% of the savings rules you apply: therefore, think locally and try to understand which ones are allowing you to put aside more savings.
Then, instead of adding more rules that would require more management effort and consequently less efficient, focus on improving the 20% that is making you the most money. Find a way to simplify – for example, you could increase the amounts you set aside or automate your savings – to maximize your savings .
Habits of your Saving
Identify what makes you truly happy in life. Is it really necessary to accept all the invitations you receive? Do you really have to have a subscription to every streaming site, or to all those newspapers?
Take the time to take stock, and you will probably come to the conclusion that 80% of your happiness depends on roughly 20% of what you do . Try to understand what makes you happy, and dedicate more time to it; vice versa, you minimize the time, effort and money you spend on the rest.
By following this principle, even 80% of your earnings will come from 20% of your investments . The downside is that 80% of your losses could come from 20% of your investments: for this, you should take the time to really understand what your risk profile is and take the time to balance yours accordingly. investments, to minimize risks.
In addition, you should do a thorough analysis of your investments and understand which ones have performed best over time , abandoning those that have proved less profitable.
Your capital is at risk and past performance may not be a true indicator of future results. Oval is not authorized to provide financial advice, expert advice is recommended if you have any further questions.