How the 80/20 principle applies to you and your finances

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If you haven’t hear of the 80/20 principle, it is based on the idea that most of the effect of something comes from a small percentage of the cause. It originally came from Vilfredo Pareto who noticed that 80% of Italy was owned by 20% of the population. This gave a generally bigger picture into how things are distributed. This idea can be applied to almost any concept, but today we’ll be talking about how it applies to your finances.

The 80/20 rule applies very well to expenses and your budget. Do you often break your budget with eating out or other unnecessary things? Then there you have it, paying attention to the smaller budget items like entertainment to ignore the big budget denting purchases you make throughout the month, say the newest smart phone, which you probably took out of your savings to pay for. It is of much more benefit to you to decrease your focus on the small stuff so if it means that you will allow the big purchases slide. Focus on keeping the big expenses to the minimum and the small expenses will balance out.

Stop sweating the small stuff!

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