There’s a simple calculation that everyone should know: The Rule of 72. It’s an easy way to estimate how long it will take for you to double your money in terms of compound interest. Now if you’re interested in learning how to calculate compound interest by hand, we take some time to review our past article.
So how does the rule of 72 work? You simply divide 72 by the projected interest rate that you hope to earn. The outcome will equal the approximate years that it will take for your money to double at that rate.
Rule of 72 Examples
We’ll give two different scenarios on how to use the Rule of 72.
You want to know how long it will take for your money to double if it is earning 5%.
Solution: 72 divided by 5 equals 14.4 (years). It will take approximately 14.4 years for your money to double at 5%.
You want to know what interest rate you need to earn in order to double your money in 3 years.Solution: 72 divided by 3 equals 24 (percent). You will need to earn approximately 24% for three years to double your money.
Both examples show that you’re able to simply divide 72 by whatever factor you have. If you know the number of years, your end result will be the percentage you need to earn. If you know the percentage, the result will be the end year. That’s because the rule of 72 calculator follows this basic algebraic formula: 72 / x = y
Why Know The Rule of 72?
It’s a simple way to see how long it will take to double your money, so why not know how to use the rule of 72! It can be helpful in thinking about interest rates and how much you’ll have to earn (or how long you’ll need to invest) in order to double your money.
Did you know about the rule of 72 calculator before?