How to Double Your Money Using The Rule of 72
Albert Einstein believed that the Rule of 72 was a more important discovery than his theory of relativity. The first reference to this Rule comes from Luca Pacioli, regarded as the “Father of Accounting”. His 1494 book Summary of Arithmetic, Geometry, Proportions and Proportionality (Summa de Arithmetic, Geometria, Proportiono et Proportionalita) explains the importance of this Rule.
Being able to double your money in just a few short years is everybody’s dream. How often have you wished upon a falling star that you’ll wake tomorrow with six figures in your bank account? Well, I’m here to tell you that this is possible. It is not a fantasy.
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1. The Rule of 72
The rule of 72 is applied while setting financial objectives, analysing economic trends, planning for financial goals, evaluating investments, and helping you with debt.
It works by determining how long it will take for an investment to double while receiving a fixed interest rate. Here’s how you calculate it: take 72 and divide it by the rate of return you hope to earn. For example, if you plan on earning an interest of 5%, divide 72 by 5. That gives you 14.4. This is the number of years it will take you to double your money.
There are many advantages to this rule. For example, you can quickly determine whether you are keeping up with the trends. You can also ensure that you are on the right track regarding your financial decisions.
It can also be used to calculate inflations because it shows you how many years it will require for the value of the starting sum to fall in half rather than double.
All this being said, using this rule also comes with some disadvantages. For example, it can only be applied to assets which calculate compound interest annually.
This rule also has some accuracy problems because it can’t calculate rates below and above 6% and 10%, respectively. Nonetheless, don’t let these disadvantages drive a wedge between you and the rule of 72. Get a hold of a financial advisor who can thoroughly explain this rule in more depth and guide you appropriately.
2. Compound Interest
As stated before, the rule of 72 only works with compound interest. When you understand the rule and the power of compound interest, you have the secret recipe for financial growth.
Having also discussed the rule itself, let’s talk about compound interest. The fantastic thing about it is that the longer your money is invested, the greater your earnings will be.
In other words, the interest earned on your initial investments is added to your initial investment, and this cycle continues. Basically: invest your money in it and then forget about it.
Now, if you want to know how long it will take to double your savings, you’ll use the rule of 72. Take your interest rate, say 6% and divide it by 72.
72/6 gives us 12: this is how long it will take for you to double your money. When it comes to compound interest, look for one where the interest rate is high because the higher the interest rate, the quicker you’ll have your doubled amount. Get in touch with a financial advisor, ask for the best compound interest and use the rule of 72 to see how quickly you can grow your bank balance.
The Rule of 72 can also be used to evaluate your investments. At some point in life, we all want to make investments, and you can use this Rule to have a key insight into how long your money will take to double. Therefore, if you are considering investing, the Rule of 72 can
help you determine how long it may take before you receive a 100% return on your investment.
No matter what kind of investment you make, the Rule of 72 will benefit you as long as you use compound interest.
For us to better understand this Rule, let’s look at the following scenarios:
- Investment #1: Savings deposit at 1% annual rate of return
- Investment #2: Government bonds at a 5% annual rate of return
- Investment #3: Mutual funds at an 8% annual rate of return
- Investment #4: Stocks with a 12% annual return.
Using the Rule of 72, try calculating how long it will take to see returns on these investments.
4. Inflation Rate
You may be hearing on the news that there’s inflation. But what does this mean? An inflation rate is a rate at which prices tend to increase over a certain period. For example, the inflation rate affects things like household goods and services. In simple terms: it costs more to buy the same thing you bought this time last year.
The rule of 72 helps us determine how long it will take us to beat inflation. If, for example, inflation averages 3% year after year, by doing the math, we realise that the price will double in the next 24 years. However, if the inflation rate stays at 6.8%, 72/6.8 gives us 10.6. So, in just ten years’ prices will rise astronomically! Using the rule, you can financially plan to stay ahead of the curve so that you are not beaten down by inflation.
This rule has a lot of advantages, including when it comes to your savings, as it can enable you to project when those savings will end up doubling. What is the first place you think of when it comes to keeping your savings? Is it keeping your savings at home? Well, this is too risky and easy to lose. Is it in the stock market? Well, this has a higher chance of growing your money and a high chance of loss. Perhaps it’sit’s opening a savings account with your local bank.
You might make 1% interest on your savings account if you’re lucky. And to be frank, this is usually the lowest-hanging fruit. Setting a goal to save is good, and setting a budget to save is a good idea as well. But you should also know how long it’ll take to double your investment.
So now, let’s look at a few examples using the rule.
72 divided by the rate of return equals time for the investment to double. For example, let’s say you have $1000 that you want to save in the bank.
Let’s also say you’ll earn a 1% interest rate yearly. So, 72 divided by 1% = 72 years. If you put in $1000 today, you can expect to have $2000 in 72 years! But I’m pretty sure you won’t be around in 72 years to get a $1000 profit.
There are many investment programs out there that can guarantee a minimum interest rate of at least 4%-7% per year! You have to research, sit down with a financial advisor, and they’ll show you much better routes.
So, let’s use the same previous example: You still have the $1000, but you now put it towards a savings program such as an index with an interest rate guarantee of 5% per year. So, 72 divided by 5 = 14.5 years. So, instead of waiting for 72 years, it will only take 15 years to double your investment with whatever amount you put in. And it’s safe! 5% is just an example. Realistic rates can be higher.
The rule of 72 is a handy dandy mathematical calculation you can use to identify several things. This can mean seeing how long you’ll have to wait for your savings to grow or how much money you’ll have to make to stay ahead of the inflation rates. Out of all the things you can use this rule on, the one common thing we learn each time is to be patient.
Start your journey towards financial freedom today, so you don’t have to be patient for too long.
How can I double my money in one day?
The Best Ways To Double Money In 24 Hours
1. Flip Stuff For Profit.
2. Start A Retail Arbitrage Business.
3. Invest In Real Estate.
4. Invest In Dividend Stocks.
5. Use Crypto Interest Accounts.
6. Invest In A Side Hustle.
7. Buy And Flip Websites And Domain Names.
8. Buy And Flip NFTs.
Can Bitcoin make me rich?
It is possible to be dirty by investing in cryptocurrency before 2023 starts, but you can also lose all your money. Investing in crypto property is risky, but potentially extremely beneficial.
How can I be a millionaire?
6 Steps to Become a Millionaire by 30
1. Start Saving Early. The easiest way to build your savings is to start early.
2. Avoid Unnecessary Spending and Debt. Stop buying things you don’t need.
3. Save 15% of Your Income—or More.
4. Make More Money.
5. Don’t Give in to Lifestyle Inflation.
How can I turn 100 into 1000?
If you want to convert up to $ 100 to $ 100 to $ 1,000, flipping your best option. You need to sell some products and sell Facebook to profit for profits or thrift store. One of the best ideas to reach your goal is one of the best ideas you can flip many things, but it is one of the best concepts to your goal.