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One of the first things I learned when I started to look into the field of Personal Finance was the rule of 72. It is a useful tool and one that can help you amaze and astound your friends.Say for example you had a sum of money and you wanted to double it in a given number of years.For example you want to set aside a certain sum for your daughter’s wedding in 10 years and you’d like to double the initial amount in that period of time.Simply divide the sum you’re setting aside for the occasion into 72, the result will be the interest rate you’ll have to earn to accomplish this goal.For example if you were to set aside $5,000 and hope to double it in 10 years, you’d have to earn 7.2% interest on it in order to see this dream become a reality.(72 / 10 = 7.2).
The rule of 72 also works in reverse.Assume you had put that $5,000 in the highest yielding money market you could find.In this fund it was earning 4% interest.How long would it take you to double this sum?You can find out by dividing 72 by the interest rate.72 / 4 = 18.At that rate of interest it’ll take 18 years to double your money.So, if your daughter was hoping to have double the fun at her wedding, she’d better postpone another eight years.
From whence does this magical number come?The Rule of 72 is derived from natural logarithms.(Technically, it should be called the rule of 69.3, but that’s not nearly as easily divisible than 72. The difference between the two will cause negligible variances unless you’re using huge numbers.If you are using huge numbers, I suggest using a financial calculator or spreadsheet program to do your calculations.)
The origin of the natural logarithm isn’t important.What is important is that the rule of 72 gives a quick and easy way to perform back of the envelope calculations regarding doubling your money.Of course there’s much much more to the topic of personal financial planning but the rule of 72 can be a fun way to enter this sometimes daunting world by allowing you to do some quick calculations, or at least be the star of your next party.
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∙ 13y ago
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Who discovered the rule of 72?
Albert Einstein
How long did asoka rule?
72 years
What is the best definition of the rule 72?
The best definition for 72 is the number before 73 and after 71.
What are the release dates for The Girl's Guide to Depravity - 2012 Rule 72 The Unavailable Rule 1-10?
The Girl's Guide to Depravity - 2012 Rule 72 The Unavailable Rule 1-10 was released on: USA: 30 March 2012 Japan: 15 September 2012
What is rule 72?
How long it will take for your money to double/divide the annual interest rate into 72.
How long does Oxycontin stay in urine?
As a general rule.....72 hours.
How long did Louis XVI rule for?
About 18 years.
Why should a consumer know and understand the rule of 72?
Rule of seventy two is used to ascertain the period by which an investment would grow by 100%. 72 divided by rate of interest would provide the approximate period by which the investment would become double. As an example, if the rate of interest is 6% per month, the investment would be doubled in ( 72/6) 12 months. Rule of 72 thus is an important tool to know the investment horizon.
Who came up with the rule of 72?
Benjamin Franklin came up with this equation.
What annual interest rate will cause your money to double in 4 years?
The "Rule of 72" gives a good approximation of 72/4=18%.
What is the best diffinition for rule 72?
the number of years it takes for your money to double can be estomated by dividing 72 by the annual percentage interest rate.
What is the rule of 72 in savings and investments?
The rule of 72 is a quick and very accurate method of determining how long it takes for money to double at a specified rate of interest, compounded annually. For example, using the rule of 72 with a compounded interest rate of 6% it would take 12 years to double your money (72 divided by 6). The precise amount of time it takes to double your money at 6% based on the actual computation of compounded interest is 11.9 years. The rule of 72 works very well unless the rate of interest exceeds 20% at which point the error rate starts to deviate substantially from the actual answer. The rule of 72 can also be used to figure out what rate of interest you need to double your money in a specified number of years. For example, if you want to double your money in 5 years, divide 72 by 5 and the interest rate needed is 14.4%.
