Know the Rule of 72

By Kris Miller

We’ve all heard examples of how compounding your money can make you rich. Double a penny every day, and in two weeks you have $81.92. No big deal, right? But after two more weeks you have more than $5 million. And in one more day, you’re at $10 million.

Of course, that’s a fantasy situation. But you still need to know how quickly your money will double with the current interest rate. Fortunately, there’s a simple way for you to figure that out. It’s called the Rule of 72. Here’s how it works.

Suppose you’re currently earning 6% interest on your money. To find out how long it will take for your money to double using the Rule of 72, you simply divide 72 by your rate of return (6). In this case, the answer is 12, which means it would take 12 years for your money to double.

You can also use this rule backwards to find out what kind of return you need to double the money you currently have. For example, if you want to double your current amount of money in 8 years, you would divide 72 by 8. The result is 9, which means you’d need to find an investment vehicle that pays 9% interest in order to double your money in 8 years.

Do some calculations based on your current portfolio and goals. Are you on track? Need to catch up? Knowledge is power. Take action on what you learn today.

Kris Miller is a Premier Success Coach that helps people ensure that they have a bright financial future.

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