Ever wondered how long it will take to double your money? The rule of 72 will help you determine that in less than a minute.
The rule of 72, developed by Albert Einstein explains how long it takes for your money to double without touching your principal and re-investing your interest (The rule of compound interest).
72/ ROI = No of years to double your money
ROI means return on investment; the assumed rate of return.
The higher the ROI, the less the time needed to double your money and the lower the ROI, the more the time needed to double your money.
Let’s take an example- Two young friends aged 21 years old – Ann and Evan.
They both have a sum of N50,000 to invest. They invest in different investment options and get different rates.
Ann invests her money at a rate of 8% per annum. With the Rule of 72, it will take 9 years to double her money (72÷ 8).
At age 21, her money is N50,000
At age 30, her money becomes N100,000
At age 39, her money becomes N200,000
At age 48, her money becomes N400,000
Let’s look at Evan. He was able to get an investment option at 12% per annum.
With the Rule of 72, it will take him 6 years to double his money (72 ÷ 6).
At age 21, his money is N50,000
At age 27, his money becomes N100,000
At age 33, his money becomes N200,000
At age 39, his money becomes N400,000
At age 45, his money becomes N800,000
Isn’t this interesting? Money spent on unnecessary or unavoidable things is money that can be doubled, quadrupled and so it goes in that order.
Another tip is to shop around for better interest rates. It shortens the time needed to double your money. However, consider your risk level. The higher the returns, the higher the risks.
Bottom line, the younger you are, the more powerful the rule works for you. You have TIME!
You do not wait for luck or charm to become wealthy, you prepare for it. With the use of a budget, invest at least 10% of your income, re-invest the interest and watch the Rule of 72 work for you.
We believe in you!
To your financial independence and freedom