THE “RULE OF 72” – YES YOU NEED IT!
Have you heard of the “Rule of 72”? This simple rule helps your HARD-EARNED MONEY grow! The “Rule of 72” approximates how many years it will take for your money to double, given a fixed rate of return. The formula: {72 / interest rate = Number years to double}.
How long do you believe it will take to double your money if placed in a typical U. S. savings account? The average bank savings account pays about 0.09% (CLOSE TO NOTHING). The average bank savings account at today’s rates takes about 800 {72/0.09} years for your money to double. Why is this important to know? Unless you have 800 or more years to wait, placing long term savings in a regular savings account is a waste of your money and time! The only ones getting rich – THE BANKERS!
Use the “Rule of 72” to calculate how long for your money to double in below savings/investments:
- Bank Savings Account: 0.09%; 72/ 0.09 = ~800 Years
- High Yield Savings Account yields ~2.6% 72/ 2.6 = ~ 27 Years
- S&P 500 ETF yields ~8%; 72/8 = Nine (9) Years
- Higher Risk Stock – Example – Beyond Meat, yielded ~30% in 2019; 72/ 30 = ~Two (2) Years
COMPOUNDING
COMPOUND INTEREST IS THE EASIEST WAY TO DOUBLE OR TRIPLE YOUR MONEY!
If you put your money in the right places (with good returns), it will grow substantially over time, thanks to compounding!
Warren Buffett – “My wealth has come from a combination of living in America, some lucky genes, and compound interest.” The sooner you invest your money, the more you will benefit from compound interest.
WHY ROB A BANK WHEN YOU CAN OPEN A CREDIT CARD COMPANY!
https://wealthbuildingpowers.com/2018/12/13/freeze-hands-up-and-drop-that-credit-card/
YOU CAN USE THE “RULE OF 72” TO DISCOVER JUST HOW MUCH BANKS ARE ROBBING YOU!
My friend’s son purchased a $3,000 engagement ring on store credit with a “GREAT” deal. ZERO interest, IF YOU PAY IT OFF BEFORE 12 MONTHS. BUT (forget about that zero interest) if you make no payments after that first year, the 29% interest rate kicks in starting the first day of the loan!. At the end of one year you owe the bank $3,870 {$3,000 x 1.29 = $3,870}. Good idea to read the fine print!
Let’s use the rule of 72 to discover why the Jewelry store, (actually a bank gives the store immediate payment and holds the loan) offers what seems like good terms. If you only pay interest on this loan each month, how long for the loan company to double their money. 72/29 = 2.5 years. Fortunately, my friend helped his son pay off that loan within the 12 months. I am not going to get started why a broke man spent $3,000 on a decorative rock!
You can use the “Rule of 72” to plug in interest rates from credit card debt, car loan, home mortgage, or student loan to figure out how many years it’ll take your money to double for a very happy BANKER!
The average interest rate on U. S. credit cards is ~ 17.3%. If you divide 72 by 17.3%, the bank can double their money, (if you only pay interest) in about four years! That’s all it takes for a credit card company to earn double YOUR money. The higher the interest rate, the faster you double the Bank’s money!
If you have debt, look into the possibility of refinancing your car loan or mortgage to get a lower interest rate.
https://wealthbuildingpowers.com/2019/10/28/stop-destroying-your-life-get-out-of-that-damn-hole/
CONCLUSION
Finding good rates of return coupled with the power of compounding means your HARD-EARNED MONEY can double, while you sleep. With more time, a lower interest rate/lower risk investment may give you enough to nail your retirement goals. With less time, you may need a higher interest rate/higher risk investment..
If you understand and apply the “Rule of 72″, to your personal finances, you will hopefully pass on the banks gimmicky promotions that just might take forever to pay off.
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ABOUT ME
I am a proud nerd (as my beautiful wife and daughter have told me) investment and finance blogger, with a NC State, Chemical Engineering, University Rutgers, MBA and Harvard University, Advanced Management education. I left corporate career because I had a desire for making a difference as a speaker and writer, to help others. I was blessed to be coached and mentored by strong women and men in both my family and professional life. It is my time to serve and give back.
DISCLAIMER
I started my first business at ~13 years of age (small but brilliantly created plant nursery). I am a successful investor in stocks, options, real estate and happy to share my personal finance and investment lessons learned with you. However, I am NOT a licensed financial advisor. Please do not construe my suggestions on this blog, as recommendations for your personal situation. For individual finance advice please seek your own licensed CPA or fiduciary financial advisors.
I write this weekly blog to make an impact by reaching an audience and demonstrating the need for financial literacy. I will help you get there.
