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The 10 10 80 principle

by Esther on February 15, 2010

You may have heard of “The Pareto principle” also known as the 80-20 rule   It suggests the law of the vital few, and the principle factor of sparsity stating that, for many events, roughly 80% of the effects come from 20% of the causes. An Italian economist Vilfredo Pareto created a mathematical formula describing the unequal distribution of wealth he observed and measured in Italy. He found that roughly 20 percent of the people in his country dominated with 80 percent of the wealth.

This Principle has been adopted in management to help managers stay focused on the “20 percent that matters”. Of all the tasks performed throughout the day, one could say (based on Pareto’s Principle) that only 20 percent really matter.

Likewise in money management there’s a 10-10 80 rule to help in budgeting. John D. Rockefeller an American industrialist was the wealthiest man of his generation. When asked what the secret of his financial success was, he gave a profoundly simple answer – he followed the 10-10-80 principle. John gave the first 10% of what he earned to God, the next 10% to savings, and then he lived within his means on the remaining 80%. From his very first paycheck, Rockefeller tithed ten percent of his earnings to his church. As his wealth grew, so did his giving, primarily to educational and public health causes, but also for basic science and the arts.

 The 10-10-80 principle recommends that

10% tithe

10% savings and investment

80% living

If you have been consistent in following your budget then you should increase your tithing and giving to 15%,  savings at 15% and living on 70% or less. The goal is to leave on less and increase on the other two categories.

In the coming days we will be discussing these categories in details.

More on Pareto Principle

{ 3 comments… read them below or add one }

Mick Read December 16, 2010 at 5:07 pm

an adaption of this princeple got us out of thousends of pounds of debt. I pay God, then pay us, then live on the rest. We now give away 20% of our net income then pay ouselves 40% of which we save 20% and live on 40%.. it is important to steward carefully each portion. Do this and you will blessed.

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Joe February 24, 2011 at 11:34 pm

Mick,
This principle works all the time- as long as you stick to it. We are commited to sticking to it even beyond getting out of debt. You are a success story.

Reply

claudewalls January 15, 2011 at 8:36 am

Just what we need to know

Reply

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