The Pareto Principle is named after Vilfredo Pareto an Italian economist who first noticed an 80/20 distribution in statistics and published his first work on this in 1896. Pareto is said to have first observed the mathematical formula when he observed about 80% of the total land in Italy was owned by 20% of the people. In his continuing statistical research he kept seeing the 80/20 pattern of distribution.
The Pareto Principle is best known as the 80/20 rule that points out that approximately 80% of results come from 20% of efforts. Or around 80% of effects come from 20% of the causes. In business many times 80% of sales are from 20% of customers. In sales you will see the top 20% of sales people make 80% of all sales. Many stores will see that 80% of their sales come from 20% of their products. At many work places 80% of the total work is completed by 20% of the employees. In many countries the top 20% of earners have paid approximately 80% of income taxes. As a trader or investor 80% of your profits will likely come from 20% of your positions. In stock market over 80% of the returns come from approximately 20% of all stocks.
The 80/20 rule is basically a power law distribution for specific sets of parameters that is shown with many business, investing, natural phenomena, real estate and government data sets exhibiting this percentage of distribution.
The 80/20 rules also shows that winners grow exponentially as a bigger percentage in statistics.
To implement the Pareto Principle into your own life find and focus on the 20% of your actions that matter most and produce the 80% of results. Start with your goals, if you want to be rich, lose weight, have a happy marriage, be close with your family, and have peace of mind then ask yourself what actions produce 80% of the positive results in those areas. It is easier to expand the 20% of the most important actions than trying to just do more work.
Pareto rules for life success may look like this:
- Growing your income has the biggest impact of wealth. The best way to grow your income is to build a business.
- Eat less. The biggest impact on your weight is the quantity of your food.
- Give your spouse positive attention. This has the greatest impact on a successful marriage.
- Living close to your family and spending quality time with them creates positive relationships.
- Managing your thoughts has the greatest impact on your peace of mind. Be careful what you believe and think about.
80% of your success in key areas may come from the 20% of these actions.
While the 80/20 Pareto Rule is not exact it is filter you can use to see what efforts produce the most results. It can be a great tool for time management so you don’t waste your time on actions and things that don’t matter as much and focus like a laser on what creates big results and makes a difference.
