The Pareto Principle in Financial Planning too


The 80/20 rule or the Pareto Principle is applicable to almost everything we see or experience in our lives. According to this principle 80 per cent of the benefits we reap come from 20% of our actions. For example 80% of the marks scored in an exam come from studying 20% of the time. This 80/20 rule is applicable to financial planning as well. 80% of your major returns could come from 20% of your investments.

Here’s how:

Shares: Have you ever considered investing in shares? If you take a close look you’d see that not all shares have shown trends to inspire long term investments. All people who’ve grown rich by investing in shares have made 80% of the money by investing in 20% of the shares. If you want to invest in shares choose those who’ve been consistent in their returns and you’d see that they comprise 20% of the total lot you might contemplate buying.

Keep realistic expectations: It’s not wise to invest everything at one place. You never know which 20% is going to bring 80% benefits to you. It’s advisable that you keep your expectations realistic.

Financial Goals: It is important for you to understand that that if you are making a good income, 80% of your needs can be met by just 20 per cent of your income. You need to ask yourself what it that you want in life is. Money matters most, but isn’t everything. Plan your investments in a way that your children receive the best education, your family is well kept and you have the money when you need it most.



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