Close Menu
Creating Freedom Through Financial Independence


80/20 Rule: The Pareto Principle for Financial Independence

January 25, 2024

I’m sure you’ve heard of the Pareto Principle, or the 80/20 rule.

It’s a principle which suggests roughly 80% of outcomes are driven by 20% of factors…

80% of sales come from 20% of products.  80% of crime is caused by 20% of people.  80% of your results come from 20% of your actions.

You get the idea.

And while it’s often more like 90/10, 75/25, or whatever, the principle itself is sound.  A minority of inputs are typically responsible for the majority of an outcome.

So the implication is clear: whatever we’re doing, we should figure out the most impactful things that will create our desired outcome.  This helps us prioritise where to allocate our limited time, energy, and money for maximum return on our effort.

In this post, let’s run through how to use the Pareto Principle for our personal finances, so we can achieve financial independence sooner, and with less frustration.

Because while I like getting into the details and encourage you to optimise your money, I want to make sure you’re also optimising your focus.



You’re probably hoping I sit here and reveal the 2 most impactful things everyone can do to grow their earnings.

But it doesn’t really work like that.  Because while there are similarities, the right strategy will differ by person.

Person A might enjoy their 40 hour per week job and have zero interest in climbing the ladder in their industry.  I effectively fell into this camp.  For these folks, working more hours in their job or a side gig is likely to be the most impactful way to grow their income, by $20k to $30k more.

Person B might work a highly demanding job and already works 50-60 hours per week.  They can tolerate the hours and stress but they just want to earn more for it.  In this case, further training, building more industry connections, networking, or even going out on their own could lead to them moving into a higher income bracket.

In both cases, employer-shopping will ensure they continue to be paid the best market rates for their skills.  Because just like banks, phone providers and insurers, employers aren’t automatically going to give you the best deal.  In fact, you might find your income falling behind others who move around more often.

Moving employers can give you a wider range of experience that someone who stays in the same job won’t have.  This makes you more valuable to all future employers and gives you greater room to negotiate a higher salary.


Saving and Spending

How does the 80/20 rule play out in our spending?

Most of our money goes to just a few things: housing, food (including eating out), transport, and travel.  That’s true for most of us.

For some of you that may look different.  You may have insurances, or health, or your kids among the biggest costs.  The other 10-20 places we spend money account for much smaller amounts.

Now, the obvious strategy here is to target those big areas to see where you can cut some fat.  I heartily recommend you do that, since there can be big savings had on those places.

But I also want you to consider another aspect.  Most of your joy and pleasure will come from a small amount of things you spend on.  So, think about which things in your life give you the most enjoyment.

Is it spending time with your family?  Going out for coffee with friends?  Solo walks in nature?  Team sports?  A hobby?

Identify the 2-3 things that add the most value to your life.  Keep this in mind before splashing cash on other things that WON’T bring you the joy these things do.

If only a few things give you 80% of your enjoyment, where does the rest go?  Obviously, you want to optimise the shit out of these.

As for a mindset to adopt, embracing minimalism is very helpful.  Minimalism isn’t going without or buying nothing.  It’s adopting a lens of focus and prioritisation.  Questioning the need to have everything, go everywhere and do everything.  We did a podcast on it a few years ago, and explore how useful it is and the incredible overlap with the FIRE movement.



One interesting way the Pareto Principle plays out is in the stock market.

You might’ve heard me cover this before, as I did in the book, and in this post, but 80% of the market’s gains over time are driven by less than 20% of stocks becoming huge winners.  This tells us that index funds are mathematically the winning choice for most people.

How else does the 80/20 rule apply?   Most of your wealth will come from just 3 factors… 

How much you invest each month/year.  Which assets you own.  And how long you own them for.

The rest is noise, honestly.

It sounds insanely simple.  But as long as you save and invest regularly into some half decent assets, this will drive the bulk of your net worth growth over time.

Sure, you can improve the outcome a bit with leverage, diversification, and maybe even clever timing.  But most of it will come down to how much you invest, where you put it, and time.

Thankfully, these things take the least amount of ongoing maintenance and can even be automated!  There is effort in learning how to invest, what good investments look like, and getting your savings rate up.  But these are skills you acquire which benefit you forever, just like the investments themselves.

Free Resource:  I created a spreadsheet to keep a running estimate of my dividend income and wealth breakdown.  I’ve used it for years as a way to help plan my finances and watch my progress over the years.  You can get it below.


Time Management

Now, I’m not a productivity guru (far from it).  In fact, I’m more on the opposite end of the spectrum.  It takes me a stupid amount of time to write a blog post.

But how we use our time can be optimised without much effort.  Not to turn you into a red-eyed-hustle-robot.  Instead, to help you make the most of your days so you have more time for the things that matter.

The truth is, 80% of our free time will be consumed by only a handful of different things.  What is it for you?  Your hobbies?  Family?  Learning and working on your goals?

Or is it the other stuff… you know… the stuff we don’t want to admit?  The infamous black-holes of time: social media, YouTube, video games and Netflix.

Stop right now and answer this question: Which activities are soaking up my time but are giving me very little in return?

Find these, and either detox from them for a while, or give yourself a limit (2 hours per day, for example).  With this extra time, reallocate it to the few activities that give you the best ROI activities, in terms of meaning and satisfaction.

You could spend the extra time on learning a new skill, working more, seeing friends, reading books, or meditating and improving your mental state.

Side note: we’re all hooked on the hyper-stimulating dopamine of scrolling and video content.  I noticed myself struggling with this too (YouTube), and avoiding reading because it seemed less interesting in comparison.  I recently told myself I could only watch video content after I’d done a good chunk of reading.  Even in just a few days, it helped my mind become calmer and clearer.  Well worth trying!



If we step back from the individual areas, we can harness the 80/20 rule in our life more broadly.

Our relationships, health, goals, and so on.  Key life decisions will be responsible for a large part of how our life ends up.  Add to that, of course, a dose of luck.

Where we live.  Who we build relationships with.  What work we do.  How we take care of ourselves.  And the goals we choose to pursue.

You can change just one of these things and have a massive improvement to your life.  And I don’t mean solely in the physical world, but the mental realm too.

So, what are the best steps you can take to get you where you want to be?  Which actions, or even habits, will really move the needle?

Is it moving locations?  Switching careers?  Focusing on your health?  Repairing, improving or starting new relationships?  Or is it something else entirely?

Only you know the answer to these questions.  But most of the time, deep down, we know which ones are most important to us and what will have the most impact.

You can also take this approach to your new year as I explored recently.

What’s ONE thing you could do that would have the biggest impact in the direction you want to head?  What’s working well in your current life that you could double down on?


How the 80/20 Rules Applies to FIRE

While all this has a FIREy flavour to it, there’s many other ways the Pareto Principle applies to the specific pursuit of financial independence.  So in addition to the above, consider the following:

— Most of your sense of financial security comes from just a few things.  Building a solid emergency fund.  Having a decent gap between your income and expenses.  And having a savings/investment plan to follow.

— Most of your progress towards freedom is driven by a couple of key philosophies.  Adopting a mindset of ultimate personal responsibility and taking action where others don’t.  A willingness to live differently and have differing priorities to everyone else.

— Most of your ambition to be financially free is driven by just a few key values.  Personal freedom and flexibility.  Wanting time for things other than work.  And valuing things other than maximum accomplishment, status, or consumption.

— Your timeframe to FI is driven by just a couple of factors.  Your income and spending, AKA your savings rate.  Your starting point.  And your desired level of freedom (semi FI, full retirement, etc).


Final thoughts

If you’ve been a bit lost with next steps and lacking clarity, hopefully the ideas in this post help you decide which actions to take moving forward.

The Pareto Principle, or 80/20 rule, is powerful concept when implemented right.  It’s a game-changer across your life and the wealth building journey too.

I always try to zoom out and look at what I’m doing to see how this principle applies.  Then I refocus on what’s working, and figure out which one or two things I could do that would make the biggest difference moving forward.

Once you identify the key drivers of progress, your return on effort is maximised.  This gives you greater peace of mind, simplifies your strategy and enhances your focus.

It’s all about making confident decisions, knowing your time and energy is being put to optimal use.  Rather than trying to do everything, you simply focus on the biggest next thing.

You’ll find it immensely useful to occasionally step back and analyse whether you’re engaged in needle-moving tasks, and how you can tweak things for greater impact.

The 80/20 rule is like a magical filter that can help you experience less frustration, greater clarity, and faster progress towards our ultimate aim of financial independence and a fulfilling life.

Thanks for reading! 

Here are some resources you may find useful on your wealth building journey:

My book: After 5 years and hundreds of articles and podcasts, I’ve now distilled everything down into an easy to follow book.  Designed as a complete roadmap to achieving financial independence and retiring early in Australia.  Available in paperback, ebook, and audio.

Mortgage broker: My personal broker of 10 years is More Than Mortgages.  If you’d like help refinancing or getting the right loan for your needs, get in touch with MTM. They have fantastic reviews for a reason. I’ve worked with them for 10 years and they’ve been excellent.

Sharesight: A great portfolio tracking tool for share investors, and free for up to 10 holdings.  It tracks all dividends, franking credits and capital gains, which is incredibly helpful at tax time.  Saves me a lot of time and headache!

Just so you know, if you choose to use these resources, this blog may receive a financial benefit at no extra cost to you.  Thanks in advance if you do.  And to be clear, I only ever recommend things I use myself and genuinely believe in.


19 Replies to “80/20 Rule: The Pareto Principle for Financial Independence”

    1. One of my favourite approach to life. Essentially 20% of effort, resulting in 80% of results, how good?

      I agree in that it’s a great filter and helps you avoid sinking that additional 80% of effort for only 20% of results. That time and energy is best spent elsewhere.

      Also, loved the book which has gone onto greatly inspire the start of my own FI journey

      1. Definitely a winning philosophy to use. Double down on what’s working and keep finding the most important stuff to focus on.

        And thanks mate that’s awesome, glad you got value from the book!

  1. Another excellent quality article Dave!

    All your points are spot on and I love how achieving financial independence is so damn simple! It only boils down to saving + investing in a diversified index fund + consistency. No need to make it more complicated than this.

    I’ve also recently been detoxing from TV & YouTube and I’ve experienced improvements in pretty much my mental health, sleep and positive outlook in life. I have an app on my phone called AppBlock where you can completely block out apps for a few days, setup schedules for when you can go on certain apps or set a limit on how long you can go on an app every day. It acts as a little accountability tool as you can’t delete the app since it’s on strict mode (you do have to purchase the premium plan to access strict mode but totally worth it).

    Anyways, great stuff mate!

    1. 100% James, and thanks for the comment.

      The positive change from reducing video consumption is surprising and worthwhile. YouTube is the one that gets me, I’m not really into short-form content like tiktok etc but damn that YouTube algorithm really knows how to hook me lol. The sheer endlessness of the content is enough to make you feel overwhelmed and like you never have enough time to learn what you think you need to learn. But if you just ignore it, life goes on and you never needed those extra 10 videos 😂

      1. Pareto principle indeed a noteworthy principle to key into and save someone from financial distress.
        I believe if I can detox myself from Social media focus and re channel my energy into reading habits. This will navigate and be a real game changer in stabilizing my focus in investing.
        Thanks Dave

  2. I agree with 80% of the outcomes are as a result of 20% of activity.

    More interestingly is that our auctions and daily life should be magnified in amount you invest in daily/monthly/yearly,what you invest in (Assets) and the time period/horizon of the investment.

    End result is financing level of desired lifestyle in retirement.

    A great peace, for keeping.

  3. I know of this before now but application is my challenge. But is also a good time to be remanded of it. Thanks many times.

  4. Dave, thank you for putting this one together. Is much needed for me and so applicable right now. Especially as I am now rather close to FIRE.

    Now to work out which ones move the needle the most and get cracking on focusing my time on those.

  5. Great article as always Dave thank you!
    With the current housing crisis making it difficult to get into the market, high interest rates and rising rents do you still support selling off your real estate assets to increase your share market investments? And would you rent or will you continue to hold at least your primary residence to stay in the market?

    1. Hi Cat. Good questions. I still plan to sell off our properties over time, so no change to that plan at this stage. Shares are performing very well by the way, so it’s not like we’ll be ‘missing out’ on performance.

      On owning, I would still feel comfortably renting – the rental market won’t always be like this. Up until the recent few years, rental growth had actually been very slow in most Aussie cities for about 10 yrs. But there’s no plan to move or sell our current home, so that won’t be changing either.

      Remember, if property is booming, banks and the economy are usually also doing well, meaning rising shares and dividends. The two asset classes are connected in a roundabout way. If someone prefers to own both to get the benefits of each and to feel more diversified then that’s a perfectly sensible approach.

Leave a Reply

Your email address will not be published. Required fields are marked *

See All
  • Strong Money Survey Results

    I share the findings from surveying my audience.  See how wealthy the average Strong Money reader is, how much income they earn, and find out the most common money worries.

  • The Power Of Deliberate Spending

    Why deliberate spending is my favourite money management style.  What it really means and how you can use it as your situation and priorities change over time.

Download the Free Guide

10 Steps to Financial Independence