Know When Your Money Will Double: The Rule of 72

In Finance, the Rule of 72 is a method for estimating your investment’s doubling time.

Considering the compounding interest, you can calculate the number of years your money will double in a certain investment. Also, this rule can also be applied in measuring when your money will be halved if used to calculate using the percentage rate of inflation.

Let’s put it into figures so you can better understand. Using this formula, you would only need the percentage of interest you are earning in a year.

Applying the rule, the figures below show that the investment is earning a 4% every year. What you would need is to do this computation: 72 divided by 4 = 18.

Meaning every 18 years your money will double, so if you invested Php 100,000 at age 29 you will earn another Php 100,00 at age 47 and so on. That’s just how simple the computation is. What really matters is you know the percentage return of your investment.

72 divided by 4
Money doubles every 18 years
Age 4%
29 100,000
47 200,000
65 400,000

Where you put your investment matters, so the higher rate of return the better. Example, you learned about investing in mutual funds which is performing better at 8 to 12% per year. Use the same computation we did earlier. At 12% rate of return per year, you will be doubling your money every 6 years. 

72 divided by 12
Money doubles every 6 years
Age 12%
29 100,000
35 200,000
41 400,000
47 800,000
53 1,600,000
59 3,200,000
65 6,400,000

That is way faster than putting your money in the bank and you are earning it passively. You don’t have to put much effort to earn that. What you would need is to save as much to put there.

You can also do this in estimating when your money will be halved when considering inflation. For example, our current inflation rate is 2%. So 72 divided by 2 = 36. In 36 years, your money will be halved. If you still have that Php 100,000 kept in the bank and grows nothing in interest. It will be worth Php 50,000 in today’s value. So technically, keeping your money in the bank is risky. It must be used for storage of emergency fund and short-term financial goals.

So that’s it, Rule of 72. Hope you learn something that you can apply in planning for your financial goals.

PS. We are advocating Financial Literacy, teaching people around the world how to achieve their financial goals. Get financial coaching and join a community that encourage saving and investing. Attend our FREE Personal Finance Seminar. Register here.

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