If you are someone who deals a lot with financial issues then chances are that you may have heard of the rule of 72. No? Well, worry not we’re here to give you some insight on this concept.
Basically, the rule of 72 is a formula used a lot to estimate the number of years required to double the invested money at a given annual rate of return. It’s a formula that you can use to calculate these important details when you don’t have access to a calculator.
You may now be thinking: That’s it? Well, no to be honest. You can apply this formula to compute the annual rate of compounded interest by finding out how much time your investment will need to double itself.
If you want to become rich then it’s a handy tool to use. Though this formula may not always be accurate it can help you make clearer money-related decisions.
So let’s give this formula a try, shall we?
The formula is as follows:
Where N= number of given period, 72 is what will remain constant and r is your interest rate.
Suppose the mentioned interest rate is 9%. You now have the variable for r, so now you can solve the formula to find the missing variable which is N.
Hence, N=72/9= 8
So you will need 8 years to double the amount of invested money.
Simple, isn’t it?
Alternatively, you can use the formula for a different purpose like to figure out the number of years it will take for the price of an item to increase. Just replace the r, which is the rate of interest with the current rate of inflation and you will have your result.
In conclusion, the rule of 72 is a finance phrase as well as a formula which is not intimidating AT ALL. You can use this simple tool for various purposes and you can do it with the help of your mind itself. No need for calculator or excel sheets.
We sincerely hope that you would find this useful one day, especially if you want to double your investment money because let’s be real, you are investing money in the first place to grow it and simple tools like this can help you with the tricks. All the best!