How to Quickly Calculate Returns Using The Rule of 72

In the next couple of weeks, I will be posting useful personal finance tips to help you attain your financial goals. These tips and tools are for people who are just starting to organize their finances.

Most of us are always fascinated with the marketing slogan of double your money in a specific number of years. This marketing strategy has been used in a lot of financial institution to advertise their products. Most of these institutions usually don't specify their interest rates on their ads.

 The RULE OF 72 is a great tool for you to calculate the interest rate of these products. The RULE OF 72 is useful for computing how long it takes for your money to double for a particular interest rate. It applies to compounding interest rates wherein the interest earned will eventually earn interest.

Below are the formula and samples of how you can use the RULE OF 72.

FORMULA:

72 / INTEREST RATE = NO. OF YEARS INVESTMENT WILL DOUBLE

SAMPLE:

A Time deposit offering a 3% per annum interest rate.

72 / 3 = 24 years

Your investment will double every 24 years

FORMULA:

72 / NO. OF YEARS INVESTMENT WILL DOUBLE = INTEREST RATES

SAMPLE:

A bank offers a long term tax exempt time deposit DOUBLE YOUR MONEY in 10 years product.

72 / 10 = 7.2 %

Interest rate for the product is 7.2%



The RULE OF 72 is an excellent simple tool for determining which product to invest in. It will help you determine how long it will take you to reach your goal for a particular product.