The 80/20 rule, also known as the Pareto principle, says that for many results, roughly 80% of outcomes come from 20% of causes. And this applies to everything you can think of. And most importantly of all, you can save money using it.
80% of your spent money goes into 20% of your purchases. A funny but real example that I heard during a lecture that included this rule was: 20% of people in a team do 80% of the work. It really does apply to everything. So how do we use this fascinating principle to save money?
Some say that 20% of your income should go into your savings account. Which sounds marvelous. Unless you live paycheck to paycheck and maybe gather some debt in the process.
It’s not realistic that everybody can set aside 20% of their income. But it is possible to target getting there. In time, of course. So ok, you can’t set that much this month, but can you do 1%? Can you do it for a few months? Can you then get to 2%? Keep that up for a bit.
Even if the percentage is not possible, set aside a dollar. Yup, just one. Skip coffee for one day. Then the next month, maybe set aside two. It’s not much, but it’s something. Even if it’s for an emergency fund that we should all have, or for actual investment at some point, something is better than nothing. It’s an exercise in the end. One that will get you to make it a habit of saving money.
If you don’t want to set aside something from your salary, get an extra gig, even if you gain 5 dollars from it. Set those aside. I for one felt more comfortable this way, to invest or save money that I made outside of the normal income. It’s psychological, but whatever works, works.
Wasting money is as bad as not saving. Actually, no, it’s worse. I hate it when I have to throw away food for example. It’s a waste on so many levels, from money to time spent cooking. It enrages me that we get to throw away what others dream of having. But that is another story.
The same is with clothes and appliances and so on. How many of your clothes do you actually use? Does the 80/20 rule apply to it? How much money have you spent on clothes that you don’t use? That is money wasted that could have been saved instead, even invested.
Let’s not get started about kids’ toys. We literally have no room for them anymore. And she plays with a handful of them. Even with donating a lot, there are still too many.
Use the 80/20 rule to analyze your spending and your already bought items. See how much you spend on unnecessary and unused things. You might discover that it adds up to that 80%. Which is a lot.
Save money and prevent waste by making purchases that add value. Only 20% of them are. So choose wisely, and strive to target that 20% saving. It may take you years, but that’s ok. Just make it a habit of setting something aside.