What is the Pareto Principle?

The Pareto Principle is named after Vilfredo Pareto an Italian economist who first noticed an 80/20 distribution in statistics and published his first work on this in 1896. Pareto is said to have first observed the mathematical formula when he observed about 80% of the total land in Italy was owned by 20% of the people. In his continuing statistical research he kept seeing the 80/20 pattern of distribution.

The Pareto Principle is best known as the 80/20 rule that points out that approximately 80% of results come from 20% of efforts. Or around 80% of effects come from 20% of the causes. In business many times 80% of sales are from 20% of customers. In sales you will see the top 20% of sales people make 80% of all sales. Many stores will see that 80% of their sales come from 20% of their products. At many work places 80% of the total work is completed by 20% of the employees. In many countries the top 20% of earners have paid approximately 80% of income taxes. As a trader or investor 80% of your profits will likely come from 20% of your positions. In stock market over 80% of the returns come from approximately 20% of all stocks.

The 80/20 rule is basically a power law distribution for specific sets of parameters that is shown with many business, investing, natural phenomena, real estate and government data sets exhibiting this percentage of distribution.

The 80/20 rules also shows that winners grow exponentially as a bigger percentage in statistics.

To implement the Pareto Principle into your own life find and focus on the 20% of your actions that matter most and produce the 80% of results. Start with your goals, if you want to be rich, lose weight, have a happy marriage, be close with your family, and have peace of mind then ask yourself what actions produce 80% of the positive results in those areas. It is easier to expand the 20% of the most important actions than trying to just do more work.

Pareto rules for life success may look like this:

1. Growing your income has the biggest impact of wealth. The best way to grow your income is to build a business.
2. Eat less. The biggest impact on your weight is the quantity of your food.
3. Give your spouse positive attention. This has the greatest impact on a successful marriage.
4. Living close to your family and spending quality time with them creates positive relationships.
5. Managing your thoughts has the greatest impact on your peace of mind. Be careful what you believe and think about.

80% of your success in key areas may come from the 20% of these actions.

While the 80/20 Pareto Rule is not exact it is filter you can use to see what efforts produce the most results. It can be a great tool for time management so you don’t waste your time on actions and things that don’t matter as much and focus like a laser on what creates big results and makes a difference.

Source:www.newtraderu.com