hr: Money

The Rule of 72 basically will tell you how long it will take to double your money at a given interest rate. Though this is just an estimate, it serves its purpose of you having an idea how much you will have in a given period of time. It is pretty simple. You just divide the number 72 by the interest rate and you will get the time period as to when your money will be doubled.

Photo Credit: a.dombrowski

Let me cite an example, say you invested your money with 6% interest per annum. This will double in twelve years time. That is simply 72 divided by 6 equals 12. But say the interest is 12% per annum your money will be doubled in six years time, that is 72 divided by 12 equals 6. Doesn’t sound like a big deal? Consider the following. A one-time investment of $50,000 from age 29 to retirement (65).

            Return                    Return
           6%                         12%
Age                          Age  
29   $50,000.00       29   $50,000.00
41   $100,000.00     35   $100,000.00
53   $200,000.00     41   $200,000.00
65   $400,000.00     47   $400,000.00
                               53   P$800,000.00
                               59   $1,600,000.00
                               65   $3,200,000.00

The rule of 72 gives you a good idea of how powerful the compounding of money can be.