How to Use the Rule of 72

The Rule of 72 shows the dramatic effect of time and compounding. It approximately how it will take your money to double.

Instructions

Difficulty: Moderately Easy

Things You’ll Need:

• Calculator
• Interest rate you are earning or expect to earn.

1. Divide 72 by the percent interest you are earning or expect to earn. Example: If you are earning 2% interest on your savings account, then 72/2=36 years. It will take approx. 36 years for your savings to double.
2. Example #2: If you have an IRA that earns 12%. 72/12=6 It will take approx. 6 years for your money to double.
3. This is the power of compound interest. The credit card companies use this same strategy against you! check with your bank or financial planner to open a retirement account today.

Tips & Warnings

• Start saving early.
• A one time $1000 deposit for your child or grandchild could potentially turn into over $2,000,000 when they reach 65 years of age if it earned 12%!