“The 80/20 Rule Revisited”

 Several issues ago I talked about the 80/20 rule; where 80% of the results come from 20% of your efforts...80% of your profits come from 20% of your customers...80% of your sales are from 20% of your available inventory….and 20% of the population earns 80% of the wealth. It also includes the 50/5 rule; 5% of the people earn 50% of the money etc.

These ratios vary, but they are a consistently useful rule of thumb.

Here’s why I’m bringing this up again;

You can’t change the ratio. That doesn’t sound “fair” does it? The government tries.

They redistribute the wealth from the wealthy, and give some of it to the poorer people.

But the wealth still flows back to the wealthy. Why?

A little may be luck. Maybe you were born with the last name Trump, that may help. But for the other 99.999999% of us, wealth flows to people who consistently make good decisions about money, and can be trusted with large sums of money.

If you take your profits and re-invest back into your business, you’ll be wealthier tomorrow than the guy who used his profit to buy lottery tickets. In 5 years, these decisions will create a staggering gap between the informed and the ignorant (I’m talking about money, but it applies to every part of life)

Here’s a part of this idea that will be hard to accept. If you think like the 80% without money, you’ll never be in the top 20%.

If you share the beliefs (any beliefs about money) of the 80% that never get ahead, you cannot become one of the 20%.

Wealthy people (first generation wealthy) have made millions of small decisions in their life that , over time, create wealth. And 80% of the population have made millions of small decisions that, over time, reduce wealth.

An experiment was done in a furniture store. 80% of the sales were from 20% of the inventory of sofas. The store owner decided only to sell the most popular 20%. So he ordered more of them, and went to work.

What do you think the results were? 80% of those sales were from 20% of the now available inventory of sofas. This rule applies to any group, even a group of millionaires...20% of that group will make 80% of the money. (in the group) Weird right?

This is similar to the life expectancy charts the Life Insurance companies use. They don’t know if you will die this year...but they can tell you the percentage of people your age that will die, if the sample group is large enough.

Here’s another useful rule of thumb. You will earn the average income of your 5 closest friends. I’ve heard that for years from different speakers. I didn’t use to believe it. I do now.

The 80/20 rule is the same as it was 5,000 years ago, and will be the same 5,000 years in the future (OK, that last one was a guess)

The government won’t really affect this. The economy won’t. There will always be people that will get ahead and people who don’t.

So we really can’t change the 80/20 rule...

The only thing I know we can do is this;

We can change the group that we are in.