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How To Apply the 80/20 Rule To Financial Freedom?

IndianMoney.com Research Team | Posted On Monday, December 16,2019, 05:34 PM

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How To Apply the 80/20 Rule To Financial Freedom?

 

 

Financial freedom is living life on your terms. It’s the power to follow your passion and dreams. It’s having the money to retire when you wish, without having the worries of daily expenses. If you wish to enjoy true financial freedom, you must strive for it. This is perhaps where the 80/20 rule comes in.

The 80/20 rule is really simple and can improve finances. You just have to put effort in it. The 80/20 rule for investing is the 20% of the effort you spend on deciding where to invest, gives 80% of your returns.

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How To Apply the 80/20 Rule To Financial Freedom?

The 80/20 rule for decision making is where 20% of your financial decisions give 80% of financial results. Say you spend a lot of time and expenses commuting and badly need a car. So, you decide to finance the purchase of the car with a car loan. You look around for the best possible car loan rates from a bank nearby. This decision-making rule helps achieve true financial freedom.

The 80/20 Budget:

Well, under the 80/20 budget rule, make sure you allocate 20% of income towards savings and the remaining 80% on pretty much everything else.  There’s no need of any expense tracker for the 80/20 budget rule. It’s just too simple. You just allot 20% of income towards savings. The 80/20 budget rule is real basic stuff. You must always strive to save more. Go for the 70/30 and the 60/40 rule where you save 30-40% of your salary.

See Also: Learn How to Achieve Financial Freedom

How The 80/20 Rule Helps You?

The 80/20 rule states that 20% of your effort gives 80% of the results. This doesn’t mean you must compromise on work by coming to work just once a week. It means you get more bang for your buck. The 80/20 rule has nothing to do with time. Its focusing effort and work on where it’s needed.

Let’s say you are in business. Your research finds that 20% of clients fetch 80% of profits. It’s common sense to focus efforts where it pays. So, you focus time and effort on developing strong relationships with clients. You focus on these clients, before going on to other activities.

How to Become a 80/20 Investor?

  • The first thing you must do is your homework. You must save and accumulate assets to build a strong base for your financial future. If there’s no money for financial needs like retirement, you got to save more. After doing your homework, lock on to the investment which gives the best possible returns.
  • Never invest unless you are sure of success. If you are not sure of the investment, keep your wallet zipped.
  • A basic rule to enjoy financial freedom is never overpay for anything. Its basic common sense to get at least the value for what you have spent.
  • Do diversification or the art of spreading investments in a proper manner. It’s not smart to invest in several equity mutual funds or stocks which you cannot handle. Over diversification means you don’t have the time and resources to manage the investment.
  • Spending time with investments means you get familiar with them. You get selective with investments and choose the best ones which meet financial goals.
  • The 80/20 investment strategy helps improve the odds of financial success. The strength of your resources gets directed towards the right places. This gives you a psychological edge when it comes to picking the right investment. This keeps you far away from financial fraud as you know your investments. You realize when an investment is too good to be true and can easily stay far from Ponzi Schemes.

See Also: How to Set Financial Freedom Goals?

Last but not the least, focus on needs and not wants. This helps you master the 80/20 rules and move on the path to financial freedom.

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