Use The Rule Of 72 To Estimate When Your Money Will Double
Finances can be hard to juggle, especially for those not particularly interested in math. The rule of 72 is an easy tip that anyone with a simple calculator or good division skills can try out. This rule is a shortcut that can be used to quickly—and fairly accurately—estimate the number of years it will take your money to double given any specific annual rate of return.
The rule of 72 is as follows: 72 ÷ compound annual interest rate = years required to double investment. The annual interest rate here should be expressed as a whole number; if the rate is 8%, then 72 should be divided by 8, not 0.08. This equation can even be quickly solved in your head, since 72 is divisible by 2, 3, 4, 6, 8, 9, and 12. The rule can also be used to answer the opposite question: how long will it take for my money to halve due to inflation? The rule of 72 is generally pretty accurate for interest rates between 6% and 10%, but can be easily adjusted for rates outside that range. Dig deeper into the rule of 72 (and how to make it work for you) in the video below.
The Rule of 72, Explained
It's quick, easy, and effective...and might just make you smarter with your finances.
What Is Inflation?
You can use the rule of 72 to find out when your money will halve due to inflation.
Internal Rate Of Return Explained
This easy wizard metaphor makes this complicated concept sound (almost) easy.