There are several financial “rules of thumb.” Take not exceeding 28% of your gross pay on your mortgage payment or maintaining 6 months of spending as cash reserves, as examples. And while these may not be adequate for everyone, they can serve as a general guideline and promote action where otherwise action would not have been taken otherwise. In that sense, these guidelines carry positive influence.

In the same vein, on today’s episode we’ll discuss a principle that not only applies to personal finance, but bleeds into all aspects of life. It’s called the Pareto Effect.