The Rule of 72 has been around for centuries and has been quoted by many. Albert Einstein has been quoted as the genius who came up with it but that has been debunked. But he is one of the ones that said “Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn't, pays it.”
Rule of 72 is a tool that can easily calculate how long it will take an investment to double with a fixed annual rate of growth. By dividing 72 by the annual rate of return, it gives an estimate of how many years it will take for the initial investment to duplicate itself.
Example: I have $10,000 in an investment account making 5% interest. It will take 14.4 years to double my investment. You take 72/5 (interest rate) = 14.4 years
Want to see a different perspective? Let’s talk about it from a debt perspective.
Example: I have $10,000 on a credit card charging a 20% interest rate making no minimum payments. It would take 3.6 years to double the balance.
Now you can see why making just the minimum payments doesn't get you far. Here is an example of someone that is $30,000 in credit card debt at a 16% interest rate making a $695 minimum payment. It will take them 30 years to payoff the balance with the minimum payment and paying $40,000 IN INTEREST! Just making an additional $380 a month will cut your time by 90% and interest by 80%!
Use the Rule of 72 to help you make your investment decision and get yourself out of debt.
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