Using the 80/20 Principle to Get Ahead with Your Money

Passion and drive are two qualities often cited as being the driving factors in success.

The reality is that the only true way you'll get ahead is if you're willing to put in the time and effort.

The best ideas and intentions mean zilch if you're set back by a lack of skill and resources. Just think about any time when you were up at 2 AM, writing down a list of big goals you want to accomplish the next day, but once it comes around you're back to vegging out on the couch.

Enter: The 80/20 Principle

The 80/20 principle (i.e. Pareto principle) basically means that 80% of your results will come from 20% of your effort.

This concept can kind of sound weird when thinking about it with the whole "results/effort" line, so here are a few ways to wrap your head around the concept:

• 80% of business profits come from 20% of it's products
• 80% of your blog traffic comes from 20% of your content
• 80% of your savings will come from 20% of your investments

The ratio isn't always right on 80/20, but it gives you a proper mindset for determining efforts-to-results.

If you break down your effort throughout the day, you begin to see which actions provide the best returns.  As per finances-you begin to notice where your money is coming and going and how to adjust your earnings and spending habits to gain the big wins.

For example:

You could spend all your time trying to cut corners and living as frugally as possible, but saving a few bucks here and there doesn't compare to smart investments such as putting your money towards a Roth IRA (like Schwab IRA) or into a 401k (plenty of options available).

If you were to start contributing $5,000 annually, in your Roth IRA from the time you were 20 until retirement at 65, you'd walk away with nearly $1.5 million.

Tell me that doesn't put things into perspective.

When you're thinking in the big wins (that 80%) and looking at what real effort will get you there (the 20%) it truly sets you up for smart decisions and gets you out of a penny-pinching mentality.

Apply the 80/20 Principle

There are two areas to which you need to apply the 80/20 principle:

1. Personal development
2. Career development

The first thing you should really do is take control of your habits, hobbies, and influences.

How you live, what things you enjoy, and who you hang out with will influence how you spend your money.

This doesn't mean cut everything out of your lifestyle - it means applying the 80/20 principle to find the real culprits.  Tone down the things that make you lose money and keep pushing on the ones that are earners.

The second part of the equation is getting ahead in your career.

The ability to refine your skills will have substantial impact on your ability to move ahead in your career.  If you place a high priority on developing skills, you can become an expert within your position.  This new role of expert will develop you into a linchpin of the business.  Having this role makes you a necessity and with it comes many great opportunities to progress in rank.

Through this bump in rank will come more take-home pay, more earnings to place toward the big win investments, and (hopefully) more time to spend on things that matter.

In all, the use of the 80/20 principle will reveal the valuable opportuniites to grow and take control of your money.  Removing the time-wasting items and focusing on the big wins will be far more rewarding than feeling burned out from constantly struggling with your funds.