In 1906, Italian economist Vilfredo Pareto noticed that approximately 20% of the pea pods in his garden were responsible for about 80% of the peas collected. He expanded this idea to the world of macroeconomics, noting that approximately 80% of the wealth in Italy was controlled by 20% of the people.
Continuing on this theme, in the 1940s Dr Joseph Juran – an expert in operations management – demonstrated that approximately 80% of product defects were caused by approximately 20% of problems in production methods.
The Pareto Principle (as it was coined by Juran), also widely called the 80-20 Rule, has since been applied to many scenarios with uncanny appropriateness.
It is worth noting that the 80-20 Rule is not a mathematical law or theorem, and it is just a coincidence that 80 and 20 add up to 100. Don’t let any of that trip you up. A particular situation may show that 30% of the sample inputs results in 60% of the desired output, for example, but the central idea is the same: a small sample of potential causes drive a disproportionate amount of effects.
As an example, a 2019 article from Rakuten Intelligence claims that 90% of traditional console game sales are from approximately 28% of the console gaming audience. However, the concentration of money spent on in-app purchases within free-to-play games is even more staggering: the data suggests that only 10 percent of the mobile in-game purchasing population accounts for 90 percent of mobile gaming sales!
Another famous example is the basis for the book and film 'Moneyball'. In 2002, the Oakland Athletics – a baseball team with a limited budget and prospects competing against much more well-funded teams – focused on a small aspect of the game (batter On Base Percentage, whether by walk, single or otherwise) to maximize their potential. The As general manager, Billy Beane, believed that on-base percentage is a better indicator of offensive success, and cheaper to obtain, than traditional scouting statistics such as stolen bases, runs batted in, and batting average. By focusing on what was considered a relatively unimportant statistic, the team was able to see huge results and went on to win the 2002 American League West title.
Of all of the various inputs you face in your day, only a handful of them will drive the desired outcomes. Similarly, most of the stresses you encounter daily will be the result of relatively few actual problems. The key to applying the 80-20 Rule in your life is in recognizing which inputs (people/activities/habits/circumstances) most often result in desired outcomes and which ones discourage those outcomes. One can then actively focus energy on the relatively small amount that tend to improve results and avoid the ones that tend to cause frustration or disappointment.
What if you eliminated some of the activities that bring you down and added to the ones that pick you up?
Are there 2-5 people that usually make your week better? How can you spend more time with them? What about 2-5 people who typically add frustration to your week? How can you see them less?
Can you offload a task you find tedious to someone else, even if it costs money? Can you take on more of the work you enjoy to compensate for the money spent by outsourcing the tedious task?
Is there an activity that makes you feel good about yourself, but you feel like you don’t have the time? Is there an activity that you hate, but feel like you can’t escape it? What if you swapped those two in priority, so that you couldn’t avoid the thing you like and didn’t have time for the thing you hate?
Timothy Iseler, CFP®
Founder & Lead Advisor
Iseler Financial, LLC | Durham NC | (919) 666-7604
Iseler Financial helps creative professionals remove stress while taking control of their financial futures. As both advisor and accountability partner, we help identify current strengths and weaknesses, clarify and refine your long-term goals, and prioritize understandable, manageable, and repeatable actions to bring long-term financial well-being. Reach out today to take the first step.