The 80/20 Rule seems to apply to almost every aspect of life. It seems to apply to our friendships, relationships, investments, activities, and so much more. I will expand on those two sentences, but first a little bit of background.

Background

The 80/20 Rule was first described by Vilfredo Pareto, an Italian economist. It is also known as the Pareto Principle or Law of the Vital Few. In simple terms, the 80/20 Rule can be expressed as follows: 20 percent of our actions, activities, and decisions typically generate 80 percent of the value, results, or performance.  Let me highlight a few examples for reference.

Some Representative Examples

In business, typically 20 percent of the people contribute 80 percent of the value-added work or qualitative performance in a company.  On a more mundane level, about twenty percent of the line items in an inventory represents 80 percent of the inventory value.  And typically, about 20 percent of a company’s customers accounts for 80 percent of the sales.

Similarly, in investing, 20 percent of an investment portfolio represents 80 percent of the investment value or portfolio growth.  Now, all of the above are not exact percentages but they are representative of the ratio.

How To Apply The 80/20 Rule To Your Personal Life

Here are two ways to apply the 80/20 Rule and these two simple practices will add significant value to your life.  First, focus on the 20 percent of your daily activities that offer the greatest satisfaction and results for you.  Second, spend the most time with those friends who provide the greatest happiness for you.  Let me restate those two points in one sentence: Spend 80 percent of your time with the 20 percent of the people who provide 80 percent of the value in life.

Links

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