The 80/20 Rule And How It Will Change Your Life

The 80/20 rule is one of the most helpful concepts for life and time management.

According to this principle: 20 percent of your activities will account for 80 percent of your results. It can change the way you set goals forever.

The 80/20 rule is also called the “Pareto Principle” named after it’s founder, the Italian economist Vilfredo Pareto from 1895. He noticed that people in society seemed to divide naturally into what he called the “vital few,” or the top 20 percent in terms of money and influence, and the “trivial many,” or the bottom 80 percent.

Later, he discovered that virtually all economic activity was subject to this principle, in that 80 percent of the wealth of Italy during that time was controlled by 20 percent of the population.

We can take Pareto’s 80/20 rule and apply it to almost any situation. In particular, we can apply it to goal setting and productivity.

I have mention the 80/20 rule in my writings before when I wrote about mindset. I wrote from going from the mindset of an Employee to Entrepreneur. So I thought it was about time to write a proper introduction to the concept. I believe it’s fundamental to every business person – to every human being – so if you have never heard of this rule, please read on and absorb everything I’m about to tell you, it could potentially change your life.

The good thing about the 80/20 rule is that you don’t have to understand statistics to be a believer. Yes it has foundations in economics and yes, it was “proven” using statistical analysis by a man named Pareto, but it is not meant to be understood only by economics professors.

Here are simple examples of this rule in your life. You probably make most of your phone calls to a very small amount of the people you have numbers for. You likely spend a large chunk of your money on few things (perhaps rent, mortgage payments or food). There is a good chance that you spend most of your time with only a few people from the entire pool of people you know.

What Exactly Is The 80/20 Rule?

By the numbers it means that 80 percent of your outcomes come from 20 percent of your inputs. As Pareto demonstrated with his research this “rule” holds true, in a very rough sense, to an 80/20 ratio, however in many cases the ratio can be a lot higher – 99/1 may be closer to reality.

It really doesn’t matter what numbers you apply, the important thing to understand is that in your life there are certain activities you do (your 20 percent) that account for the majority (your 80 percent) of your happiness and outputs.

You may have expected me to say that 20 percent of your activities produce 80 percent of your financial rewards, and that is true, there are probably a handful of activities you do each week that produce your income. You can definitely apply the 80/20 Rule to most aspects of your business or working life, however I believe your overall happiness and satisfaction are much better variables to focus on. Money certainly plays an important role in your happiness and your money is influenced by 80/20 relationships, but it is only a component that leads to your overall well being, which should be your primary concern.

My 80/20 Life

In my life I’ve noticed plenty of 80/20 ratios and generally they relate to my core competencies and passions. I really enjoy writing articles such as this. I work my job, yet on the side I own have my own Energy Business helping people take advantage of Deregulation and I also enjoy helping other entrepreneurs to maximum their own business through my Blog. To do this in a profitable manner, I apply this rule. 80% of my time in my business is focus towards Action, while the other 20% towards Learning. You should always be learning from Books, Audios, and Mentors.

Whenever I have a moment of time, I look at my list. This list each day, I break up into two categories, Urgent and Important. The side that is Urgent may be such things as emails, and texts. This is the 80%. The other side of the list in my Important list. It consist of be such things as spending time with my wife and children, and doing my minimum actions in my business to reach my goals. The important list is my 20% that will have the greatest impact of my life.

80/20 Business

Just in my own business I notice that this principle applies. It’s very clear that a small handful of repeat customers account for most of the income. The customers who become longterm users, who gain the most from the services and fit well demographically and socially with the business model, are key. They provide 80 percent of the value but only represent 20 percent (or much less) of the overall people that use the business. My job is to determine the best way to attract and convert more customers into longterm users. I admit over 80 percent of my customers are one time customers, but that is not my goal. I am only looking for a larger portion of that 20%.

With blogging I learned that there are a handful of activities that I do every day that produce the most results. Breaking things down further, there are usually a key 20 percent of elements within an individual blog article (think article headline) that have the most dramatic effect on results. The numbers of course are not clean 80/20 ratios but there are definitely dominant factors at play.

In a business sense, finding the 80/20 ratios is crucial for maximizing performance. Find the products or services that generate the most income (the 20 percent) and drop the rest (the 80 percent) that only provide marginal benefits. Spend your time working on the parts of the business that you can improve significantly with your core skills and leave the tasks that are outside your best 20 percent to other people. Work hardest on elements that work hardest for you. Reward the best employees well, cull the worst. Drop the bad clients and focus on upselling and improving service to the best clients.

How You Can Live An 80/20 Lifestyle

When you start to analyze and breakdown your life into elements it’s very easy to see 80/20 ratios all over the place. The trick, once your key happiness determinants have been identified, is to make everything work in harmony and avoid wasting time on those 80 percent activities that produce little satisfaction for you.

The message is simple enough – focus on activities that produce the best outcomes for you. This applies to both your business/working life and your “other” life (I think they are all part of your “life” but people often prefer to distinguish them). The problem for most people is how to make a living from what you really enjoy, so lets focus on that…

I’m sure you have heard the phrase “struggling artist”. The stereotype where a creative person, musicians, actors, writers and artists, struggle to get discovered and work long hours on horrible day jobs, often in retail and hospitality, until hopefully they finally break out, get discovered and become famous. It shouldn’t surprise you that the ratio of struggling artists who actually become famous enough to live off their craft also follows an 80/20 Rule – only a small few of the overall total manage to get that far.

The same can be said for entrepreneurs. How many of you now reading this article are working day jobs, jobs you probably don’t like much, while you work hard after-hours to get your dream business up and running?

In truth, and this is a sad fact, most people in the world work jobs they don’t like and only truly live their passions on weekends and outside of working hours. Only a small sample actually live their passions day in and day out, how they want to and when they want to. If you want to become one of the special few so you can live your passions on your terms there are a few things you can do.

Outputs Vs Inputs

I’d like to make a point about outputs vs inputs before moving on. Most humans are good consumers – we are good at taking inputs. Chances are you can easily rattle off a bunch of things you do enjoy about your life: eating out at nice restaurants, consuming junk food, reading books and magazines, going to parties and dance clubs, watching movies and DVDs, listening to music, meeting new people, surfing the net, having sex, playing sports and shopping. All of these activities more or less are inputs which means you consume the outputs of other people.

You may consider the activities I just mentioned passions but it’s hard to find a sustainable passion if all you do is consume. To foster an 80/20 lifestyle you need to locate activities that are passions for you because you create output for others to enjoy. Yes you can get paid to have sex, watch movies, eat at restaurants and read books, but chances are you won’t find it fulfilling or sustainable for very long OR you will be required to provide something back as part of your involvement – that’s your output, the value you create.

It’s okay to love eating out at restaurants and claiming your passion is food, if your intention is to also create output by starting your own restaurant, or a restaurant reviews website or a newsletter or magazine or becoming a chef. If you enjoy listening to music you might also enjoy producing your own music or covering the music industry as a journalist on your own blog.

Only by producing output for other people to enjoy or make practical use of can you expect to convert a passion into a sustainable income. You should understand this already as I suspect the times in your life that you have created something for others or worked on something that benefited other people you experienced the most fulfillment. If you suffer from a lack of direction now, if you are depressed because you don’t even know what your passions are to start applying the 80/20 Rule to, you need to do one thing – start being creative and giving back – produce output! You won’t find fulfillment only by consuming.

An 80/20 Lifestyle Blueprint

To start living 80/20 today you have only to do one thing – focus your energies on what you enjoy.

Part time work – Part time passion

Many people work a full time job and work after hours on a business or hobby or creative talent. If this is you I suspect your ratio is not 80/20 and probably closer to 20/80. You spend way too much time at a job you don’t like, you are probably not very motivated to do it well so you don’t fall into the vital 80/20 employees for that company, and by the time you get home you are too exhausted to spend time on your passion. You feel like you are getting nowhere fast. This lifestyle is not good for anyone since all the relationships fall into the 80 percent that produce 20 percent of the value. You get very little from it and the people you work for get very little from you.

If this currently describes your situation what you need to do is start changing those ratios. Reduce the amount of time you spend at a job you don’t like and increase the amount of time you spend on your passion. You may say you can’t do that because you need the money but I suspect you don’t really need as much as you think you do. Most people can live off part time work but choose to work more because they want more things. You may see your peers enjoying material goods which creates desires in you. Your wants start to outweigh your needs, which is probably the biggest pitfall in our modern, advertising driven, materialistic society.

I’m not saying you have to live like a pauper but I know that your real happiness comes from spending time doing things you enjoy the most, not from earning more money. Chasing the dollar for the sake of the dollar does not work. Chasing passion often leads to a greater income because the quality of your output is so much higher. Focus your energy on increasing investment in your core strengths and you will reap rewards.

Drop your working hours to three days per week and spend more time attracting more clients, booking more singing gigs, finding more time to write your novel or to develop your invention or code your software or find investors or whatever it is you really want to do.

For those of you who have no intention of turning your passions into money generating enterprises this is still a good option. If money isn’t your primary concern but your music is, why do you spend so much time working to earn more money than you need? Yes you need to plan for the future and build assets, but clearly for your musical soul it’s not something that needs to take the majority of your time and energy. You can be happy without that mansion by the sea and you never know, if you spent more time on your music the eventual album sales may one day lead to that mansion by the sea. If not, at least you will be a lot happier for following your enthusiasm rather than the dollar.

If financial freedom is important to you and a big part of your plans look at this step as phase one and work to convert your passions into income generating propositions. Grow your business client-by-client, gig-by-gig or sale-by-sale. keep adjusting your work vs passion time ratio as your business grows to support you and you no longer need your job income. Look for 80/20 activities in everything you do and drop any inefficiencies as soon as you can.

My passion is actually with the Boy Scouts of America. Yet, this is a volunteer group, and I can not support my family while do this full-time. So, I needed to find something that I could apply this rule to and create an income on side of my job. That is when I came across Ambit Energy.

Don’t Let Fear Stop You

The biggest factor that stops most people from chasing their dreams and working towards their real goals is fear. Fear of the lack of security, the reduced paycheck and of the unknown future keeps people locked into routines that are not satisfying. That path leads to sadness, depression, poor health, low income and ultimately an early death. Who wants that!

Don’t let fear be the reason for not achieving your goals. Stop, reassess your real passions, remove the money equation long enough so you can think without worrying about finances, and make plans to move towards your 80/20 lifestyle activities. Maximize what you are good at. Find the activities that produce the most results for you and your business and put your energy where the big rewards are.