While technically a picture book it is a great title to read to third. The rule of 72 can also be used backwards to learn the rate of return required to double your money in a certain number of years. It is interesting mathematically and as a rule of thumb for quick mental calculations. Now lets say youre looking for an investment that will double your money. Return of your initial investment plus a percentage more. If you want a shortcut approach to estimating how compound interest will affect your investment holdings over time, the rule of 72 is simple enough for the most mathhating individual to. Today i found out about the rule of 72, which is a very easy way to calculate in your head how long it will take to double your money or debt based on a given fixed interest rate, assuming the interest is annually compounded. When you are putting your money to work and trying to grow capital by investing, the first thing you should probably think of is how long. All you have to do is divide 72 by the interest rate.
Its as simple as dividing your interest rate by 115. The actual equation is r x t 72, where r is the interest rate and t is time, or periods of time, in months or years, from this equation the required interest rate and number of payment periods can be extracted. The rule of 72 is a simplified way to calculate how long an investment takes to double, given a fixed annual rate of interest. An individual is earning 6% on their money market account would like to estimate how long it would take to double their current balance. A simple way to figure out how long it will take to double your investment funds if to take the number 72 and divide it by your expected return. Its an easy way to calculate just how long its going to take for your money to double. How to turn your yearly income into your monthly income bob proctor the law of compensation duration. With the rule of 72 you can figure it out how long it will take. Double your money with the rule of 72 quick tip my.
One of the reasons i love this little formula, is because it helps you think about the kind of risk you want to take with your investments. Doubling your money with the rule of 72 limor markman. Its a shortcut that investors use to estimate if an investment will double your money quickly enough to be worth pursuing. We all want to double our investments, but over what period of time. You take a yearly rate of return say 7% and divide it into the number 72 to find out how many years it takes to double. The rule of 72 is a wellknown shortcut, which allows you to quickly determine how long it will take for your money to double with compound interest. What is rule of 72, 114 and 144 of compounding interest, formula and examples. The rule of 72 trick to calculate when investments double. A 1% return takes 72 years to double your investments. Double your money with the rule of 72 physician on fire.
The rule of 72 is a simple way to determine how long an investment will take to. The rule says that to find the number of years required to double your money at a given interest rate, you just divide the interest rate into 72. The rule of 72 will tell you how long it will take for your money. The rule of 72 helps you estimate how quickly an investment will double. The rules are dispersed throughout the book rather than set by categories, but each rule has a label on it to show which category it belongs in. That money is like a fruit treemoney is like a fruit tree, you cannot expect to plant something and get to eat its fruit the next day. How the rule of 72 can help double your money the balance.
Since most people cant do that formula without a calculator, the rule of 72 is a useful shortcut to give a rough estimate of an investments doubling time. If doubling your money isnt good enough, the rule of 115 will show you how long it will take to triple your money. If you want a shortcut approach to estimating how compound interest will affect your investment holdings over time, the rule of 72 is simple e. Rule of 72 is an easy way to gauge the impact of compound interest by estimating how. The rule of 72 or how to easily double your debt the. It turns a complicated calculation into one you can often do in your head. Its not exact, but its never more than half a year off. The quotient is the amount of time it will take you to triple your money. How to compound your money and uncover hidden stock profits jacobs, tom, del vecchio, john on. Thatll give you how long it takes to double your money.
Each rule is only a page or three long making for a quick and easy read. The rule of 72 is a tool used to estimate how long it will take an investment to double at a given. The rule of 72 is an easy way to calculate how long it takes for your money to double. If you want to double your money, the rule of 72 shows you how to do so in about seven years without taking on too much risk. Double your money every 7 years with compound interest. How to double money rule of 72 the biglaw investor. The rule of 72 for compound interest video khan academy. Money rules is a set of easytofollow rules about money and life. While noted canadian financial journalist, tv host, and author gail vazoxlades previous efforts have been more narrowly focussed, her latest, money rules. If you want to quickly determine how long it will take for your money to double, the rule of 72 is all you need. The rule of 72 is a finance shortcut for figuring how long it will take to double your money with an interestearning investment.
Its called the rule of 72 and its a quick formula that will help you determine how long it will take for your investments to double at your current interest rate. The rule of 72 is a shortcut to estimate the number of years required to double your money at a given annual rate of return. If hearing 7% doesnt get you excited, the prospect of doubling your money might. By using it, you get to know how much time it will take to double your money. Also, one is more likely to remember the rule of 72 than the exact formula for doubling time or may not have access to a calculator that allows logarithms.
The biglaw investor email list covers personal finance, financial independence, investing and other stuff for lawyers that makes you better. Rule your money, or your money will rule you, is aimed at a general audience. The rule of 72 tells you how fast your investment will double. The rule of 72 is einsteins simple shortcut to figure out how long it takes for an interestcompounded value to double. So if your goal was to double your money in ten years, for example, you would divide 72 by ten. The rule of 72 is a simplified way to calculate how long an investment takes to double, given a fixed annual. People have been talking about the rule of 72 for centuries.
Typically in finance, calculating the doubling time requires the use of complex future value algebraic equations or dusting off the old financial calculator. If you wish to double your money, receiving a single percent less can extend the number of years you need to reach your goal. The rule of 72 says you can double your money in six years with a 12 percent annual return. Most people generally understand the concept of compound interest, knowing that over time, interest earned will begin to snowball and accumulate more rapidly. The rule of 72 depicts how even a small 1% difference in inflation, fees or investment return can have a large effect in forecasting models. Their rule of 72 proof to be separated because of the interest amount per many years to get the estimated period necessary for doubling. A conservative 7% return doubles it every 10 years, and doubles again in 10 more years. The rule of 72 has been around forever and is a very simple way to determine how many years it will take to double your money or the funds invested in your investment portfolio. For example, if you want to know how long it will take to double your money at eight percent interest, divide 8 into 72 and get 9 years. The rule of 72 teaches you that the more time you compound your money, the greater will be its return. I teach new investors about compound rates of return by employing the rule of 72.
The rule of 72 is a simple equation to help you determine how long an investment will take to double given a fixed interest rate. The rule of 72 estimate your investments doubling time. As you get to higher interest rates, it slightly underestimates how long it. The rule of 72 is a simple formula to estimate how long it will take to double your. The rule of 72 is easy to remember and doesnt require a calculator. In this case, you would need to find an investment that can reliably achieve 6% growth every year.
How to compound your money and uncover hidden stock profits. Just divide 72 by your interest rate, and there you have how long it. The rule of 72 will tell you how long it will take for your money to double at a given rate of return. The rule of 72 is defined as a shortcut or rule of thumb used to estimate the number of years required to double your money at a given annual rate of return, and vice versa. The rule of 72, doubling your money, and investment. This is the excuse most people make to go on a gambling spree. Just take the number 72 and divide it by the interest rate you hope to earn. The time value of money tvm formula is the following. You should be looking to grow your money over time. Let the rule of 72 work for you by starting to save now. A more surefire way to double your money requires a few key ingredients.
You can also use the rule of 72 to plug in interest rates from credit card debt, a car loan, home mortgage, or student loan to figure out how many years itll take your money to double for someone. The rule of 72 calculator also shows how the figures actually calculate over the time period if an amount is entered. The rule states that you divide the rate, expressed as a. Remember, the rule of 72 will guide in you in how long it. The rule of 72 is a financial shortcut that tells you approximately how many years it will take you to double your money, given a specific rate of return.
The rule of 72 with calculator estimate compound interest. What is rule of 72, 114 and 144 of compounding interest. What the rule of 72 reveals about the future of an investment. For another example, if your money has to double in two years so you can buy your significant other a trip to europe, youll need 72 2 36 a 36% rate of return on your stash. And you can use the rule of 72 to determine, at a given inflation rate, how long it will take for your money to buy half of what it can by today depressing. People like to see how their money grows especially how their investment doubles. Trust that the investment will continue to grow and not fall to zero, and math guided by the rule of 72. Know your financial quotient, win free pass to diy investor workshops.
It can also estimate the effect of exponential decay like how your money can. That number gives you the approximate number of years it will take for your investment to double. The rule of 72 approximates how many years it will take for your money to double, given a fixed interest rate. Higher is better, of course, but if the investment is lower than 6%, you wont achieve your goal of doubling your money in 12 years. Use the rule of 72 to understand compound interest gen x. The calculation to figure out how much time it will take to double your money is related to the compound interest formula. The rule states that the amount of time required to double your money can be estimated by dividing 72 by your rate of return. For low interest rates, for low interest rates, so thats these interest rates over here, the rule of 72, the rule of 72 slightly, slightly overestimates how long it will take to double your money.