The Pareto Principle, also known as the 80-20 rule, was named after an Italian Economist, Vilfredo Pareto. Pareto observed that 80% of the wealth in Italy was owned by 20% of the population. Since then, very many observations have been seen to follow the 80-20 rule and Pareto's Principle has been used by the United Nations, Microsoft and other international giants.

Pareto Principle may be summarized as follows; 80% of the effects come from 20% of the causes.

The principle follows from the fact that life does not distribute things evenly. Therefore, the way you allocate time, resources and effort has a pareto principle effect. For example:

1. 80% of your happiness comes from 20% of your activities

2. If you have a business, 80% of your profit will be generated from 20% of your customers. Also 80% of your complaints/calls will come from 20% of your customers

3. 80% of your telephone calls are to 20% of the numbers in your phone book.

The big lesson today is the realization that you only need to focus on the critical 20% that matter. You can therefore afford to ignore the trivial 80% and yet achieve 80% satisfaction.

Let me explain this in a simple way. Each day when you have to make decisions on what not to do, make sure you at least do the critical 20%. What this means is that you should identify the critical activities (20%) that produce the most value and focus on these.

What about the other 80% made of trivial activities? You can delegate these activities or automate them or delete them - they won't affect you much.

Homework.

1. Analyse the 20% critical activities that affect your personal finances. For example if you want to reduce your monthly expenditure, start by identifying the 20% expense items that contribute 80% of the total expenditure. Then work on trimming these expenses and you will see a big impact on your finances.

2. If your phone book is full, which numbers can you afford to delete with minimal regret using the Pareto Principle?