• Margaret Curtis, MD

The 80/20 Rule

Updated: Jan 30, 2019

If you have been hesitant to manage your own finances because you fear you won’t be good enough, the 80/20 rule is for you.

The 80/20 rule says that, with any project, the first 20% of your effort goes into the first 80% of the outcome. After that you start seeing diminishing returns, and it takes another 80% of your effort to get that last 20%.

Let’s say you are cleaning out the garage. You spend a few hours taking out the trash, putting up hooks for the garden tools and putting the skis away. Now you can actually drive the car in, and you can find the garden hose. Pretty good. 20% effort, 80% improvement. Still most of the day left and you could knock off and go to the beach.

Instead you decide to really whip the garage into shape: you sort all the loose hardware into labelled containers. You make a run to the home improvement store to pick up some shelving. You sort through the old paint cans. You decide to do some painting. By the end of the day, the garage looks like something out of a magazine and you are spent. The majority of your effort went to that last 20% of effect.

As a physician, you have to put in 100% of your effort pretty much all the time (I say “pretty much” because I am including time spent in meetings). You are probably someone who tends to be a 100 %er in much of what you do. The good news is that your personal finances don’t actually require 100% effort or outcome. This sounds scary, I know, but this is what I mean:

You pay down your student loans and your high-interest consumer debt on a schedule. You contribute the max into tax-advantaged retirement accounts, and you use low-fee index or target date funds. You get term life insurance and disability insurance.

You have just done 80% of the things on your financial to-do list, with modest time and effort. It’s totally OK to stop there - you will be fine. You can spend the rest of your time doing things you enjoy more.

If you actually enjoy this stuff and really want to dive in you can do the next 80% of the work: tax-loss harvesting, comparing TIPS and munis, pondering REITs. You will get another 20% of value from this but it isn’t necessary for financial security and a secure retirement. And since it’s YOUR security and YOUR retirement, you get to decide.

a long, hilly road
Progress, not perfection.

So there you have it. My permission to be less than perfect at learning about finance.

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