The Rule of 72

Business, Finance & Soul

Why the Rule of 72 is the Secret Weapon in Your Financial Arsenal

Ever found yourself wishing for a crystal ball to predict your financial future? What if I told you that you already have something almost as good, and it's hidden in a simple math rule? Welcome to the Rule of 72, the closest thing to a wizard's spell for doubling your money!

What is the Rule of 72?

Imagine you could find out exactly when your money will double just by using a simple math trick. That's the Rule of 72 for you! Here's the scoop: you take the number 72 and divide it by the interest rate you're expecting to earn. The result is approximately how many years it will take for your initial investment to double.

For example, if you invest in something with an 8% return, just divide 72 by 8. Voilà, in about 9 years, your money will have doubled—no magic wand needed! This is why saving your money simply isn’t enough. Sure, at today’s rate, we are getting a solid 5% return but at 5% it takes 14.4 years to double your money. Imagine the savings rate a couple of years ago at .5%, it would take 144 years! That’s crazy!

The Magic of Compound Interest

Compound interest is the fairy godmother of the finance world. It works quietly in the background, turning your handful of beans into a beanstalk reaching towards financial freedom.

Here's a fun exercise, imagine starting with 10k, 20k or even 30k at the age of 25 and averaging a rate of return at 9%. By the age of 65, you will have experienced five cycles to double your money. How much should you expect in your bank account.

The rule of 72 is here to have fun and get creative with. Work backwards and dream a bit.

Enjoy and stay curious!