Double your money faster with the Rule of 72

Double your money faster with the Rule of 72Do you know how long it will take for your money to double? Figuring this out is easier than you think! No super-computer, NASA rocket scientist, or even a calculator is required! All you need is the Rule of 72.

The Rule of 72 is an equation discovered by Albert Einstein, but so easy a 3rd grader can do it. (Yes, I said a 3rd grader, not 3rd year calculus major!) It’s an easy way to approximate how long it will take your money to double.

How do we do this? Easy! All you need to do is divide 72 by the interest rate. That’s it! The result will let you know approximately how many years it will take for your savings to double.

Let’s walk through a few examples….

Three friends decide to try their hand at investing. Each has $10,000 in their pocket, and want to see their money grow.

Joe fancies himself a savvy consumer, so he makes sure to hit to look for a high interest rate savings account. He bypasses these, as he found the banks are offering as little as 0.05% to as “much” as 2% on their “high” interest rate accounts. (These are actual rates pulled from on May 20, 2011) Joe thinks he’s found a smoking hot deal when he’s offered a 4% rate of return. How long will it take his $10,000 to turn into $20,000? Let’s do the math:

72/4 = 18 years!

Brian thinks that Joe is a sucker for choosing to invest at 3%. Brian instead choses an investment with a 6% rate of return. How long will it take his $10,000 to double?

72/6 = 12 years… a little better…

Ally doesn’t want to wait 12 years for her $10,000 to double. Understanding the Rule of 72, and having a higher risk tolerance than her two friends, she choses an investment that has historically provided a 12% rate of return*. Assuming that her higher-risk choice does end up providing a steady 12% rate of return, when will her $10,000 turn into $20,000?

72/12 = only 6 years!

Now you know how simple the Rule of 72 is! How long will it take for your money to double?

* Past performance does not guarantee future results

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5 Responses to “Double your money faster with the Rule of 72”

  1. […] my last blog post, “Double your money faster with the Rule of 72“, I presented a few scenarios showing how important compound interest is when it comes to […]

  2. Wow! This is great information. I think people generally have no clue about how low bank interest rates really are! There’s a lot of money being left on the table!

    Thanks for the helpful tips!

  3. Wow! What a simple way to figure out how long it will take your money to double. I’d never heard of this before. Thanks for the great info! Definitely a piece of knowledge that will surely be useful in the future!

  4. Tom says:

    I’m excited to see a PF blog from a fellow Vancouverite. I see that it’s a new blog but I’m looking forward to what you have to say.

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