Have you ever noticed that a large portion of our lives are dominated by a small portion of things? It’s called the Pareto principle or the 80/20 rule. 80% of our lives are ruled by just 20% of the most important things. My mother was a high school math teacher, and she would spend 80% of her time dealing with 20% of her problem students. This is just one simple example of how the Pareto Principle is at work in our lives.
There are so many more examples of where the Pareto Principle dominates factors of our lives. And, the Pareto Principle extends to our finances as well. Whether you are a consumer or as an investor the Pareto Principle makes its way into our lives whether we like to admit it or not or we even realize it.
How Much Clothes Do You Wear From Your Closet?
Have you ever look at how many pieces of clothes that you have in your closet? I hate to admit it, but I have almost just as large a closet as my wife. I have just as many shirts, jeans, slacks, and suits as she has dresses, shoes, and purses. Looking at my closet though I can see the Pareto Principle alive and well.
When I try to decide what shirt to wear in the morning I find myself gravitating towards a certain select few. When in fact, 80% of the time I select only 20% of the shirts that I own to wear day to day. It is the same 20% of the shirts in my closet that I wear day in and day out. While this may not tied directly to personal finance, it does show that we do spend an enormous amount of our money on many things that we don’t even use.
How Many Television Channels Do You Watch?
How many television channels do you have that come with your cable package? Or, how many television channels do you get from your satellite TV? Inevitably Americans watch a lot of TV and have access to a lot of television channels.
But, how many do we really watch? The Pareto Principle is alive and well in our television watching patterns. I am willing to bet that most of us have several favorite television channels that we watch consistently.
Even most televisions today have buttons right on the remotes to help us identify, remember, and easily return to our favorite television channels. I am willing to guess that most of us have about 10 or maybe even 20 favorite television channels. But, if we have almost 200 channels to choose from, we are not even spending 80% of our time watching 20% of the channels that are available to us.
Instead we are only watching 10% the channels out of the 200 that are available to us. We are not even getting to 20%. Can you get by with the smaller cable package and still continue to watch the same amount of channels that you normally typically do during the week? I’m willing to bet that you can if you just simply admit that we are a victim of the Pareto Principle.
Do you have a lot of money sitting idle? Do you know where to invest 1000? There is a lot of cash on the sidelines of the market. People have been scared and have a significant amounts of money sitting on the sidelines, under their mattresses, and in savings account earning little to no interest.
through Lending Club. 
I used to love to play Texas Holdem Poker. I still do, but I also have to know when something starts to become habit forming and possibly not healthy. Believe it or not, but there are a lot of things that 
, to set a certain percentage (say 10%) of a loss as a trigger for you to automatically sell a position that you have in a company’s shares.