The Rule of 72 is a very simple formula for new investors to learn. With this convenient tool, you can quickly estimate how long it will take your investment success to double using a given fixed rate of interest. In addition, you can this formula to find out the approximate rate of return needed to double your money over a certain period of time. It’s a terrific way to project approximate growth. It will also make you see how your money can grow through compounding
For example, say you are earning 6% and you want to see how long $100,000 will take to double. All you have to do is divide 72 by 6 and get 12. In other words, it will take around 12 years for your initial investment to become $200K provided the interest rate remains the same.
In addition, you can calculate the opposite in a snap using the same formula. Say you want to double your wealth in 10 years, and want to determine what kind of interest you should be getting to accomplish the goal. So, you take 72, divide it by 10 and get 7.2%.
Using a formula like this provides you with a rough guideline to help you think about and plan your future. Having numbers in front of you to will make your wealth goals concrete and give something to work toward. You will be inspired to move forward with more deliberateness, and want to stick your savings and investment success in the long-run.