Rule of 72

                                               Rule of 72
                           It figures out how long it takes your investment to double

                                                                

What is the Rule of 72?

This is a quick way to calculate how long it will take to double your money if it is invested at a particular interest rate.

It is all about the power of time.

You take the interest rate you expect to earn and divide it into 72.

Key Takeaways

The rule of 72 is a simple way to calculate how long it will take an investment to double.

It is a great mental math shortcut to estimate the effect of any growth rate

Investors use this rule when planning for retirement, education, and long-term financial goals.

Why Rule 72 Exists?

How do you possibly predict how much money you could make from an investment?

One way is to look at the interest rate on investments.

The problem is that calculating compound interest can get a little complicated, especially when if you don't have a calculator handy.

That's why the Rule of 72 exists.

The Rule of 72 can be an easy rule of thumb to follow in selecting investments.

Rule of 72 is a  shortcut, that helps you to get a sense of how interest can play out on an investment over a period of time.

Why do investors need to understand the rule of 72?

It is a simple way to help you estimate how your money may grow over time.

This helps the investors to understand if they need to save more.

How much do they need to save more, to reach their financial objectives?

How to use the Rule of 72?

The formula is:-

Time= 72 / Interest Rate

Time= Time is years for the investment to double

Interest rate=Annual rate of return

Example

If you want to invest Rs. 5000 @ 6% interest rate

Time= 72 / 6 = 12 years

So, it will take your Rs. 5000, 12 years to double and reach Rs.10,000

Use the chart

1%, it will take 72 years for your money to double (72 / 1 = 72)
3%, it will take 24 years for your money to double (72 / 3 = 24)
6%, it will take 12 years for your money to double (72 / 6 = 12)
9%, it will take 8 years for your money to double (72 / 9 = 8)
12%, it will take 6 years for your money to double (72 / 12 = 6)