The Rule of 72 is about the magic of compound
interest. Albert Einstein supposedly once said that compound
interest is "the greatest mathematical discovery of all time." I
don't know if the legendary genius actually made such a statement.
But if he didn't, he should have.
The Rule of 72 is a rule of thumb that can help
you compute when your money will double at a given interest rate.
Just divide the annual rate of return you expect to receive and
divide it into the number 72 and it will tell you how long it will
take to double your money.
For example, if you can get 10% a year on your
investments, your money will double every 7.2 years (72 divided by
10). If you can get 20%, your money will double every 3.2 years.
If you can only get 5%, it will take you 14.4 years to double your
money.
Of course, that's with money working for you
rather than against you. If you choose to have your money working
against you rather than for you, the Rule of 72 will work in
reverse. If you borrow $10,000 at 10%, and you don't make any
payments on your debt, in 7.2 years you will owe $20,000.
The
Rule of 72: Is Your Money Working For You Or Against You?