The Pareto Principle and Your Budget

The Pareto principle (also known as the 80-20 rule) states that, for many events, roughly 80% of the effects come from 20% of the causes.

The rule can be re-phrased to apply to almost any situation - and astoundingly - it proves to hold true in almost every case.

Pareto offers a simple, but cunning tool to help zoom in on what really matters. If you need significant results from minor adjustments, Pareto is your man. With just a little thought, Pareto gives you maximum leverage for your effort.

If we're talking about your monthly personal budget, you could write the principle like this:
20% of what you buy accounts for 80% of what you spend.

So if you are trying to trim down a size-up budget, the most effective place to start working out is in your top 20% budget items where a small adjustment has a significant impact. Practically put, a 10% saving on a R10 000 expense is better than a 50% saving on dishwashing liquid.