Some of you are probably familiar with the Pareto Principle, but for those of us (cough – myself – cough) who had to Google it to make sure, the Pareto Principle is pretty awesome. Seriously. It means that 80% of our results are determined by 20% of our actions. So, here’s the Pareto Principle applied to savings.
As someone who’s obsessed with personal finance, I always try to find a common link back to my money.
Pareto Principle Applied to Savings
Those themes often represent the core 20% of my activities. I boil it down to three key elements: frugality, work ethic, and fortune. My list include fortune because we can get it all right but still be struck down by that proverbial lightning bolt.
My favorite part about frugality and work ethic is that they’re comprised of our daily habits. I harp on habits because habits happen automatically and without any serious mental effort required.
Saving money on autopilot thanks to Habits!? Yes, please.
But, forming habits might take some SERIOUS mental efforts to set them up in the first place.
Two of our most popular podcast episodes cover this exact topic: Pareto Principle and Identifying the Largest Areas to Save Money
Here’s the clip for Pareto:
Here’s the clip for Saving Money:
In our household, 80% of our results come from two decisions we made in 2015:
The first was moving closer to work.
We no longer needed a car or public transportation. The savings also helped our health as we needed to walk everywhere.
Given that home was now a 5 minute walk from work, I also felt less inclined to go out for meals. Waiting in line at Chipotle often took more time than walking home and preparing my own meal.
The one decision to move closer to home led to a half dozen new habits in my life that each led to more savings.
If we were not able to move closer to work, then we would have also considered finding a job that was closer to home.
The second was capitalizing on my value by negotiating higher salaries.
My pay doubled in less than 4 years thanks to the skill I developed to have a crucial conversation without it being confrontational.
I used to have a college professor who said, “Don’t sell your skin too cheap.” His analogy may have been a bit extreme, but maybe not. We can never replace our time so the least we’ve done is make sure we’re paid for what we’re worth.
These two decisions are my application of the Pareto Principle and the results I’ve seen.
What are the results in your life from having applied the Pareto Principle to savings?