Personal Finance 80:20: Can One Principle Transform Your Financial Life?

If financial planning feels complex, saving money difficult, and investing tricky, what should you do? Should you stop thinking about finances or learning more about them to feel at ease with them? Can there be just one principle one can follow or a habit one can imbibe to build a robust retirement corpus? Recently, when a redditor, LongjumpingRent7114, asked about that one 80:20 principle, mindset, or habit, where 20 per cent of personal finance learnings can make an 80 per cent difference in one's financial life, fellow redditors came up with some surprising answers.

These ranged from budgeting to reducing expenses, living below one's means, to not buying depreciating assets. Some show the basics of financial planning, and others show practical measures, which reflect the awareness about personal finance and planning.

A user named greycatdaddy wrote, "Spend less than you make, start putting a little away monthly starting when young and let the power of compound interest work for you and learn delayed satisfaction and not always give into your emotions."

Another user, Primodita, shared a detailed anecdotal experience while posting, "Since my first job at 16, I have converted what I would spend my money on, to hours I have to work to get said item/event. So when I was making $8/hr and I wanted to buy a new $60 game, I would think of how many hours of work it would take to pay off the game. If (I) was going to play it 60 hours and it only took 8 hours (8x8 =$64) to buy it, it would be worth it to me. This really helped stop a lot of frivolous spending like getting a bag of chips from the gas station, where it would cost $5 for a small bag of chips that I would enjoy for an hour at most. Did I really want to work nearly a full hour of work for one bag of chips?

This mindset saved me a ton over the years and set me up for success later in life when I had more money to spend/save to see my financial growth and freedom."

However, a user named the_curer drew attention to another principle that also applies to financial matters, and that is "anything measured, improves."

However, the thread shows some quirky replies, too.

Zeddicus11 wrote, "Don't marry someone who is bad with money. Looks might fade, but healthy financial habits really compound over time."

A user, fec2455, posted, "Not having a rich father is poor luck, not having a rich father-in-law is poor planning."

Live Within Your Means And Have Patience

The thread strongly points to one standout principle: 'Live within your means.' This simple rule is foundational to lasting financial health.

However, following this principle and after spending on necessities, whatever is saved should also be invested wisely to grow the money.

Says Preeti Zende, a Sebi-registered investment adviser and founder of Apanadhan Financial Services, "Common investors think that making money through investments is easy, but in reality, it is the hardest one. You can earn a good income through your job or business, but to create substantial wealth, you need one quality: Patience.

She highlights the mindset and underlines patience. As she says, patience leads to compounding benefits, which leads to wealth creation.

She says, "Patience is the easiest thing to say, but very difficult to follow in reality. We all know the magic of compounding. We learned the formula in high school. We read the story about it in Panchatantra, but when we need it the most for wealth creation, we lose patience easily. And losing patience is not only when the market is underperforming, but also when it is a bull run. Investors tend to book notional profits and losses and lose the opportunity to multifold their wealth. Real compounding happens in 3rd decade of investments."

What Is More Important, A Financial Principle, A Mindset, Or A Habit To Improve finances?

"In my opinion, mindset plays a very crucial role in your investment journey. Human emotions actually make a lot of difference in the final outcome. If one can manage human emotions like greed and fear, and have a strong mind to tackle the volatility in the market, then they can create long-term sustainable wealth", says Zende.

Amol Joshi, founder of Plan Rupee, a financial planning and investment firm, opines, "Mindset to save and invest is probably the most important for an investor. There could be many distractions in an investment journey throughout a lifetime, including lean earning periods, bear markets, flat markets, and high expenses during a certain phase of life, and so on. Having a strong mindset helps you sail through these phases."

Save More Or Earn More

The question is difficult because saving more and earning more require two different skills, but as they directly affect one's financial standing, they need to be discussed.

In the thread, a user named paladin10025, suggested like a pro, and posted, "Invest in yourself - skills, health, happiness, knowledge, take measured risks, understand compounding, rule of 72, show up - as in put in the effort, be on time, deliver on promises, and take responsibility for your life - be purposeful."

On the other hand, butteryspoink, another user, emphasises earning more than just saving more, and posted, "You don't get rich from saving more. You get rich by making more. I kinda scoffed at this until my income grew 50 per cent after switching jobs. Suddenly, my net worth grew at an actually insane rate."

Of the two distinct skills (saving and earning), a salaried individual may have more control over savings than earning, unlike an entrepreneur. 

Joshi says, "Saving more money is important to start with, as it has to do with mindset and habit forming. Your income can always go up in the future, and to complement it, you already have a high savings rate that will boost your overall corpus over the medium to long term."

The crux is to follow the principle of spending less than you earn, develop a saving mindset as soon as you start earning, and this mindset turns into a habit. Overall, it's a recipe for long-term wealth creation.