Is the Pareto principle bullshit
Pareto principle: 16 everyday examples for more success
Like so many, you have probably already heard about it:
The Pareto Principle, also known as the 80-20 rule (more rarely the 20-80 rule). It roughly says that you can achieve 80% of the success with 20% of the effort.
This principle can be a very valuable tool to use your time better and more efficiently. This in turn helps you on your personal path to financial freedom.
At first, however, it can be a little difficult to get a feel for this principle.
That's why I've put together a few clear examples for you that you can use immediately to achieve more, be more efficient and get closer to your goals faster.
Over time you will develop a feeling for it and automatically scan your everyday life for it.
If you are already familiar with the Pareto Principle, feel free to skip the first section of this article and scroll straight to the examples below.
In a nutshell about the Pareto principle
The Pareto principle simply states that in many cases you can get a large part of the success with a fraction of the effort. I once illustrated it to you graphically ... unfortunately it didn't turn out as beautiful as I had hoped, mea culpa. 😉
As you can see, the gain in success is steeper at the beginning than later if you were to swap a unit of “effort” for a unit of “success” linearly. Although this rule is not a law of nature, it can be empirically observed in a similar way in many areas.
A classic example that everyone knows: Your apartment urgently needs a spring cleaning again. So you get started, full of enthusiasm for tidying up and cleaning up. Lo and behold: At the beginning you will see success relatively quickly! You pick up the clothes from the floor, rearrange the furniture, put away the dishwasher and everything doesn't look so bad anymore. But if you go into detail now and wipe the dusty lampshade so that you can check that off your list again, then the gain in cleanliness is less than at the beginning.
And if picking up clothes etc. was quick, the small jobs like dusting take up a lot of time, but don't contribute much to a better first impression.
Incidentally, this principle was discovered by the same gentleman called Pareto (Italian), who found that 80% of the property is distributed over 20% of the population. Gradually he was able to more or less determine this distribution in other areas as well. Possibly also when he tidied up and cleaned things up himself.
What does this mean for you now on the way to financial freedom?
The 80-20 rule applies to your finances as well. So 20% of your investments will account for 80% of your success. When you have reached 20% of a millionaire's fortune, you will have 80% of his or her satisfaction. The same goes for your financial freedom. We have already discussed that the path to financial independence is already worthwhile today. The Pareto principle is the reason for this:
When you have reached 20% of the necessary wealth for your financial freedom, you will feel 80% of the satisfaction that you will get when you have reached the full amount.
Pareto principle examples
1. Tidy up the apartment
You expect a visit in an hour and your place looks like S **, it would take 5 hours to clean it up tippi-toppi. So what to do Give up? No way! Clean everything? Impossible! The solution: Concentrate on the most conspicuous things in this remaining hour. Everyone sees clothes on the floor, but not dust on the kitchen cupboards.
2. Schedule your free time
Unfortunately everyone knows: you are planning too much, but you don't have enough time and you can't make up your mind? List the 5 most satisfying alternatives for you in descending order and delete the last four. Give it a try, you will be more satisfied than if you find yourself frustrated every Sunday evening that you have not made all 5 alternatives. However, if you concentrate on what is most important to you and accept the prioritization, you will be happier.
3. Study for an exam
Are you short of time and want to get the most out of the next exam? Put your focus on things that are important to you. Let us assume that there are 5 different types of tasks, each with 5 examples that were calculated in the course.
(Admittedly, in reality there are more like 20 tasks with 1000 sample tasks each, but with 5 it is easier to calculate. 🙂)
But there would only be enough time to practice all 5 examples of a single type. Then instead you calculate a task of each type and cover all task types, but do not go into too much depth, but cover one sample task each.
4. Learn a new language
With only 20% of the existing vocabulary one can master 80% of all situations (reading, writing, listening, speaking) in a foreign language.
5. Muck out the wardrobe
You wear 4/5 of your clothes little or no. If you remove these from your wardrobe, you will have a clearer wardrobe with exactly the parts that you really like and that look good.
6. Lose weight
You take in 80% of your calories with 20% of your food. So if you want to lose weight, reduce it in a targeted manner. I'm sure you know pretty much straight away what foods those are!
7. Don't consume so much news
Only 20% (if any 😉) of the headlines you read are of any informational value. So spend less time on news portals or Twitter and do something different instead.
8. Reduce stress
80% of your stress is generated by 20% of activities and people. Try to identify these activities and reduce them as much as possible.
9. Build a depot
Many people invest a lot of time in the skilful construction of an ingenious depot, only to then realize that every broadly diversified depot has a very similar long-term performance. So why mess around with the umpteenth Japan Small Tech Cap ETF when a simple world portfolio will do the same? In the time saved, you could work a few hours overtime and earn some start-up capital for your portfolio.
10. Choose a broker
It is very similar when choosing a broker. You spend hours trying to find the one who is maybe a few euros cheaper a month. After a short research, you find that the standard brokers in Germany all have very similar conditions. Pick one of these and don't make a science out of it. Because that's not it.
11. Find the best overnight rates
In my opinion the greatest absurdity of all and at the same time the favorite hobby of German savers: hunting for the latest top interest rates on the Internet. For a better return after the decimal point, hours of time are invested in finding a marginally higher interest rate, in setting up a new account. However, if you were to calculate the hourly wage, you would have to laugh at most of the amounts involved.
Don't make it too complicated, find an overnight money provider that is in the past constant Has delivered decent interest (not necessarily the best, but not the worst either) and the arbor is done. You prefer to spend your free time with friends, go to work or learn something.
12. Prioritize your tasks
If your to-do list is hopelessly overcrowded again, write down all the to-do items and prioritize them. The top tasks first, and the rest of the way you do it later. For example, if there are 10 things on your list, then you knock the last eight down first and do the two important ones first. You do this every day and you will see that your mountain of tasks melts faster and more thoroughly from now on. Because now you don't despair in shock because of the seemingly unmanageable burden. You can do it with ease now.
13. Focus on the important customers
The prime example when it comes to the Pareto principle: 20% of customers generate 80% of sales. So it makes sense to concentrate on exactly this group of customers in your work.
14. Focus on the important products
The same applies to products in a company. 20% of the products account for 80% of sales. So focus on just these.
15. Familiarize yourself with new software
Studies have shown that 80% of people only use 20% of the full functionality of a software. That means, you should have the courage to deal with new software. Often it doesn't take that much time to be halfway inside. It is also, depending on the software, a further qualification.
16. Focus on the greatest troublemakers
80% of the complaints come from 20% of the customers. So if you want to approach the topic as efficiently as possible, then focus on this 20% first and then on the others.
A few words of caution at the end
The Pareto Principle is a very powerful tool to get more done, but as is so often the case in life, it's more of a thumbs-up story. In the past, the 80-20 principle has been applied more or less stubbornly to almost any situation. The empirical evidence does not always confirm the 80-20 ratio. Sometimes it can also be shifted in one direction or the other, for example 90-10, 70-30 or even 20-90.
The numbers don't always have to add up to 100, by the way. The 20-90 are not a typo. Adding up to 100 has probably just worked well so far, because people like “round” numbers and that's why they seem to have stuck with them.
Furthermore, it is not always possible to simply stop after 80% success, sometimes you just have to go for the 100%, with the correspondingly higher effort.
Also, the 20-80 rule should by no means be an invitation to sloppiness. Just because 80% may be reached quickly doesn't mean you shouldn't get your chores done properly. On the contrary, I claim that the ability to work conscientiously is what makes the Pareto principle applicable in the first place. Because 20% bullshit is still bullshit.
In conclusion, the Pareto Principle can be said to be a useful tool to get more out of your life. Regardless of the area, be it professional, (passive) investing or private.
Time is a finite commodity for all of us, so it is all the more important to spend it only on the really important things.
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