{"id":73561,"date":"2015-06-24T12:30:51","date_gmt":"2015-06-24T18:30:51","guid":{"rendered":"https:\/\/www.biggerpockets.com\/renewsblog\/?p=73561"},"modified":"2021-03-16T11:39:52","modified_gmt":"2021-03-16T17:39:52","slug":"2015-06-24-the-80-20-principle","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/2015-06-24-the-80-20-principle","title":{"rendered":"The 80\/20 Principle: How to Be More Efficient & Successful at Everything"},"content":{"rendered":"

How can an 18th century economist help us become more successful? For one, by teaching us about the natural principles of inequality inherent in the very fabric of our world.<\/p>\n

Pareto was said to be in his garden admiring his peas, as we all do, when he noticed 20% of his plants producing 80% of the peas. He found this same uneven distribution in economics. At the time, 80% of the land and wealth in Italy was owned by only 20% of the population. <\/span><\/p>\n

After publishing the results, people started noticing the 80\/20 principle play out in a lot of interesting ways. Roughly 20% of the people in the U.S. hold 89% of the wealth<\/span><\/a>. Microsoft found that 80% of the errors and crashes came from 20% of the bugs<\/span><\/a>.\u00a0Approximately\u00a0<\/span>76.6% of the world’s consumption comes from 20% of the world’s people<\/span><\/a>. And\u00a012% of real estate agents do 90% of all sales<\/span><\/a>. Ok, so it\u2019s not always 80\/20, but the point is that not all things are equal. <\/span><\/p>\n

What Does This Have to Do With Investing?<\/span><\/h2>\n

What the Pareto\u2019s principle showed was that wealth and achievement in society tends to be unevenly distributed. If you look around, you\u2019ll notice the same thing. It\u2019s everywhere.<\/span><\/p>\n

Related:<\/strong> One Proven Piece of Advice to Improve All Your Investing Decisions (The Buffett Series)<\/a><\/em><\/p>\n

How does this happen? How can one person become a billionaire and another starting out with the same opportunity and number of hours in a day barely make a living? It comes down to actions.<\/span><\/p>\n

If actions are the only thing that gets results and success follows an unequal distribution, does it not mean that successful people spend a disproportionate amount of time focused on activities that produce disproportionately better results? Could 20% of your actions also produce 80% of your results? I think they can. <\/span><\/p>\n

As Vilfredo Pareto said, \u201cFor many events, roughly 80% of the effects come from 20% of the causes.\u201d<\/span><\/p>\n

In the past few months, I\u2019ve tested this principle with my own business (real estate) by calculating the time I spent on different lead generation activities and the results each produced. I found that about 75% of my income came from about 10-15% of my activities and time. While all activities produced results, meeting new people\u00a0outside of real estate was by far the most effective.\u00a0<\/span><\/p>\n

Instead of working more hours trying to do everything, as most people do, I decided to stop doing everything that didn\u2019t give disproportionate results so I could focus more on the actions that did. Besides, if you take the best 20% of your activities and up them to 40% of your time, business should double. In just a few months, that’s exactly what happened to me. And I spend a lot less time working.\u00a0<\/span><\/p>\n

Another example of the 80\/20 rule comes from Warren Buffett, who spends 80-90% of his day learning. That’s right, one of the best investors the world has ever seen spends very little time investing. He understood from the beginning that most of his results would come from knowledge, so he spends a disproportionate amount of time learning. It worked.\u00a0<\/span><\/p>\n

Where Do I Start?<\/span><\/h2>\n

\u201cThe wisdom of life consists in the elimination of non-essentials.\u201d — Lin Yutang<\/span><\/p>\n

Just because an activity can produce results does not mean that it\u2019s worth it. Think of the 80\/20 principle the same way you think about\u00a0investing in real estate. Some things are great investments, and others are not. How you spend your time and energy is no different.<\/span><\/p>\n

Related:<\/strong> What Famous Billionaire Investors Have to Say About Current Market Conditions<\/a><\/em><\/p>\n

The only way to get rid of the non-essentials and start achieving greater success is by keeping track of what you do and how well it\u2019s working:<\/span><\/p>\n