How to Apply the 80/20 Rule to Money… And Make Getting Out of Debt Easier
Do you ever feel like you’re trying to take control of your money but you are so overwhelmed by the amount of budgeting, side hustling and organisation it requires? I think most of us know this feeling.
But have you ever heard of the 80/20 rule? Also known as the Pareto Principle, this is a theory that, when it comes to goals, 80% of rewards come from 20% of actions. This means that whatever you are trying to achieve, 20% of your efforts reap 80% of the success, and therefore focusing on this 20% is the key to making your goal as easy as possible on yourself.
“…Broke people problems cannot be solved by an increase in income, because being broke is based on mindset and behaviour, not how much you have, or don’t have, in your bank account.”
Take losing weight, for example. You might diet, begin weight-lifting, do cardio and start walking everywhere. All of these things will help you get to your goal. But in this case, dieting is the 20% that will reap 80% of your success, because as long as you are consuming less calories than you burn, you will see results. You can watch your diet and do nothing else and still expect to lose weight. So when there are times where you are run-ragged with your new exercise routine, your diet and everything else you are doing to achieve your goal, know that that key is focusing on your diet; everything else is just gravy.
Incase you think I’ve given up blogging about finance in favour of fitness (and my waistband would really disagree here!), I want to show you how you can apply the 80/20 rule to your money, in order to make debt freedom or saving uncomplicated.
Culturally, we tend to believe that if we had more money, our finances would improve. We strive to get promoted or increase our income, thinking that this is the answer to our financial problems. But if you are consistently over-spending your income now, then the same would apply if you doubled, tripled or quadrupled your income. You might buy a bigger house, a better car, adopt a more expensive quality of living, as most of us do. You might take better holidays, or send your children to private school. Believe me, broke people problems cannot be solved by an increase in income, because being broke is based on mindset and behaviour, not how much you have, or don’t have, in your bank account
As you might know, I finished paying off £16k of debt in 2018, and in doing so, I needed to totally overhaul the way I managed money. Paying off £16k meant upping my income, side hustling, cutting my expenses, and sticking to a good budget. The 20% that achieved 80% of my success? Our budget.
However, many people are more interested in side hustling as means to taking control of their finances, but if you only focus on increasing your income, you aren’t focusing on cutting your spending. And ultimately, spending eats up savings and gets us into debt. Focus on building a budget that reduces your current spending to below your earnings and you will be able to build savings and overpay debt- it’s as simple as that. And that was the 20% that helped us to get out of debt.
“The 20% that achieved 80% of my (debt payoff) success? Our budget.”
But back to the other 80% of effort we made in paying debt: Overtime. Matched betting. Selling. Part time work. Doing surveys and using money making apps, and everything else we did. Was it worth it? Absolutely. And I would definitely recommend, particularly if your budgeted expenses exceed your income, taking on a side hustle if you can.
But I also think side hustling, especially when you have more than one hustle, is a lot to take on on top of a full time job, taking care of a family, or whatever else you do day-to-day. It can get overwhelming, which can lead to quitting or finding it difficult to achieve balance in your life. So that’s why I only recommend it if you can, because sometimes people can’t find the time to side hustle, and that’s ok.
Which is why adopting the 80/20 rule works so well. It enables you to become selective about the things you choose to focus your energy on. You can choose one side hustle, if your schedule allows it. You can do some overtime, if you have the time. But ultimately, 80% of your success comes down to creating a good budget, and sticking to it.
That’s why I urge you to focus on your budget, because it’s they key to getting out of debt and building wealth. The budget I used when I got out of debt can be found for sale here, if you are looking for a great resource to start with- and thank you if you choose to purchase it. It will help you to collate all of your financial information clearly, and automatically calculates how much you overpay debt or save.
“Focus on building a budget that reduces your current spending to below your earnings and you will be able to build savings and overpay debt.”
If you only do one thing today towards your goals, choose to focus on your budget- it’ll really pay off!
Don’t forget to leave a comment below and tell me if your 2019 resolutions are budget-related. Will this be the year you take control of your finances?