The Rule of 72

The Rule of 72 is a simple way of predicting how long that it will take for your money to double for a given interest rate.

It is a powerful Critical Thinking financial tool. Armed with this information you can make wiser decisions about where to invest your money.

To apply the Rule take the expected average interest rate per year and divide it into the number 72.

Thus, a 4 percent interest rate would take 72/4 or 18 years to double your money.

If you can get 8 percent for investing your money then it would take 72/8 or 9 years to double your money.

If you can average 12 percent on your money you will be able to double it every 6 years. This is quite a difference!

The Rule is not exact, but it is close enough to do some worthwhile calculations in your head when evaluating different investment options.

Not all investments are equal, and today more than ever it is important to evaluate risk verses interest rate expected.

This rule magnifies the importance of compound interest rates.

Learning this rule and applying it correctly can help you make a great deal of money.

Here is an example of how to apply the Rule of 72 to three different interest rates on a $2,000 investment.

The chart will only show when the money doubles.

At 4%/Year
Year 0 = $2,000
Year 18 = $4,000

At 8%/Year
Year 0 = $2,000
Year 9 = $4,000
Year 18 = $8,000

At 12%/Year
Year 0 = $2,000
Year 6 = $4,000
Year 12 = $8,000
Year 18 = $16,000

In Summary:

In 18 years if you invested your money at 4% average interest rate you would only have $4000.

If you invested it at 8% average you would have $8000 and at 12% interest rate you would have a whopping $16,000!

Note: Taxes are not taken into account using this rule.

Return from Rule of 72 to Problem Solving Techniques

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