The Rule of 72 is a simple calculation to determine how long it will take to double your money at a specific interest rate. For example, if your were expecting a rate of return of 7% you would divide 72 by 7, which tells you it would take about 10.3 years to double your money at that rate.
This also works the other way. If you knew you wanted to double you money in 12 years, you could divide 72 by 12, which shows you would need a 6% return to achieve this.
Not just for compound interest, the calculation could also be used to gauge the effect of inflation. For example, a 3% inflation rate would mean your money will lose half it’s spending power in 24 years. Certainly useful to know when planning your retirement!
Is the Rule of 72 accurate? No, but it’s close. While the examples above come within decimal points of the true calculation, smaller interest rates start to skew the numbers. If you where to properly calculate a compound interest of 1%, it would take just under 70 years to double, not 72. Still, not too bad for a quick calculation that dates back to the fifteenth century!
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Tom Drake is the owner and head writer of Canadian Finance Blog.
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This is a great trick for rough calculations. I remember learning it in high school math class, but thanks for the refresher!
Simple trick to make a fortune
Interesting calculation. But I guess it all depends on how well you manage your money.
It’s considered as the 8th wonder of the world! Great invention of mankind!
Rule of 72 rules
http://thegetwealthy.com
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Thanks for letting me know Steve. Not sure what would have happend but I’ll keep an eye on it.
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Very interesting… I have never heard of this rule of 72. It’s very handy… Thanks for sharing.