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What is 90/10 Rule of Money?

9th September, 2010

in Personal Investing

money

Most of us know of the 80/20 rule. It also known as Pareto Principle or Principle of Least Effort. What it means is that, 80 percent of our success comes from 20 percent of our efforts. This rule was originated by the Italian economist Vilfredo Pareto in 1897.

However, Robert Kiyosaki believes that the 80/20 rule is only good for average. In his book “Rich Dad’s Guide to Investing: What the Rich Invest in, That the Poor and the Middle Class Do Not!“, he explain that in the world of money, the most suitable rule is 90/10.

Rule 90/10 means that 90 percent of the people make 10 percent of the money and 10 percent of the people make 90 percent of the money.

This 90/10 rule holds true in almost anything financial. Take the game of golf, for example. Ten percent of the professional golfers make 90 percent of the money. In the world of movies 10 percent of actors make 90 percent of the money.

This rule is also true for Stock Market. In the 13th September 1999 issued of Wall Street Journal stated that 90 percent of all corporate shares of stock in America are owned by just 10 percent of the people.

What do you think about this rule? Is this rule applicable for us?

{ 3 comments… read them below or add one }

kelhome September 12, 2010 at 2:30 pm

in my trading, i use 80 and 20 to measure oversold and overbought level :)

Reply

TCKhew May 29, 2011 at 11:42 pm

When I first read your title “What is the 90/10 rule of Money”, I thought you want to talk about the 10% of our money/asset is uncontrollable. For example, we suddenly need to spend unexpected money for unexpected accidents that happen in our life. Then, 90% of our money/asset is determined by how we manage them. The reason why I think like that is because I have ever written an article on this 90/10 rule, but is not about money. If you are interested in the article that I just mentioned, here is the link, http://www.dunmiscue.com/inspiration-motivation/the-90-10-rule

Anyway, your way of defining the 90/10 rule is still applicable to all of us. What you shared here is undeniably true. ;)

Reply

anonymous January 2, 2012 at 4:04 pm

I didn’t read this Robert Kiyosaki’s book so I can’t comment too much on his “90/10″ idea.
What I do know though is that his 90/10 is a variant of the Pareto principle.

The Pareto ratio of 80/20 is not meant to be rigid. Meaning that it does not always need to be 80 and 20.. It could have been a 70/30, 60/40, or even 90/10. It does not even need to add up to a perfect 100 (80+20, 90+10..). 70/40 is as Pareto as 80/20.

I read his first book Rich Dad Poor Dad. Awesome writer.

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