Money

Save money applying the 80/20 principle - part 1

By Thomas ⋅ December 5, 2008 ⋅ Print This Post Print This Post ⋅ Post a comment
Save money applying the 80/20 principle - part 1 Save money applying the 80/20 principle - part 1

This is Part 1 in a series on how to apply the 80/20 principle to save money. The full series is Part 1, Part 2, Part 3, Part 4, Part 5.

80% of your expense amount come from 20% of your expense area.

The point is to determine expenses that make a big impact on your money and focus on them to improve your financial situation.

First step to save money, identify your expense area.

You need to track your expenses. My advice is to use a personal finance web tool like Mint.com. You can also use software like Quicken, MS Money or a simple spreadsheet (Excel, Google spreadsheet…).

  1. Make a list of your expense area sorted by descending order.
  2. Take the top three element of your list and for each one think how you can reduce expenses.

Let’s take an example:

Let’s imagine housing and apartment rental is my highest expense. I should ask myself these questions: Do I really need this fancy apartment in a trendy neighborhood downtown? Does the spare bedroom really necessary? Can I improve the insulation of my house to decrease my heat bill?

There is a lot of question you can answer to save money from your house but the most important is buy (or rent) a house (apartment) you can afford.

Let’s now imagine food is my second biggest expense area. Can I work on it to save money and still eat well? Yes, I can. Example:

  • Eggs and milk are the highest protein sources but very economical
  • Eat seasonally. Melons in summer and apple or orange in winter. You don’t need to eat raspberries in December.
  • Beans are highly nutritive and very cheap.
  • Eliminate sugar-water beverages. Ok it’s fancy to have pink or yellow bottles in your fridge but it is a total waste of money.
  • …

Then let’s take my car as my third biggest expense area. Do I need this luxuriant SUV or this big car while I have no family? Can I reduce my commute and use my bike to buy groceries?…

One advice very easy to set up that will make you save gas is : respect speed limitations. Ok you will need to leave to work 2 minutes earlier but you will save gas, money and contribute to the environmental protection. ;)

Creative Commons Licensephoto credit: kiki99

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5 comments for “Save money applying the 80/20 principle - part 1”

  1. [...] full series of saving money applying the 80/20 principle is Part 1, Part 2, Part [...]

    Posted by Save money applying the 80/20 principle - Introduction | Unbalanced man | December 10, 2008, 11:43 am

  2. [...] is Part 2 in a series on how to apply the 80/20 principle to save money. The full series is Part 1, Part 2, Part 3. You are using 20% of your stuff 80% of the [...]

    Posted by Save money applying the 80/20 principle - part 2 | Unbalanced man | December 10, 2008, 12:16 pm

  3. [...] is Part 3 in a series on how to apply the 80/20 principle to save money. The full series is Part 1, Part 2, Part [...]

    Posted by Save money applying the 80/20 principle - part 3 | Unbalanced man | December 10, 2008, 12:18 pm

  4. [...] is Part 4 in a series on how to apply the 80/20 principle to save money. The full series is Part 1, Part 2, Part 3, Part [...]

    Posted by Save money applying the 80/20 principle - part 4 | Unbalanced man | December 12, 2008, 1:28 pm

  5. [...] is Part 5 in a series on how to apply the 80/20 principle to save money. The full series is Part 1, Part 2, Part 3, Part 4, Part [...]

    Posted by Save money applying the 80/20 principle - part 5 | Unbalanced man | December 16, 2008, 7:06 am

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