Rule of 72!
Welcome to the 3rd Edition of the Finconomist
Welcome back!
We hope you all enjoyed reading the previous editions as much as we did making them!
This time, we bring to you a topic that not many people know of - and is really quite intriguing - RULE OF 72!
So get ready for another ride across the Finsnap Ocean - a plethora of fun personal finance principles, terms as well as digital tips!
RULE OF 72!
Just like the intricate web that a spider builds to capture its prey, the investment market too has many complex webs that one must understand to capture their prey (money). One such web is the Rule of 72: a thumb rule in finance to get a quick understanding of a basic question - in how much time will my money double?? OR At what rate of interest will my money double in x years? What is it? If you put your money in the right places, it can grow substantially over time, thanks to the power of compound interest. It could even double, while you don’t have to do a thing. Want to figure out just how fast your money could grow? The “Rule of 72” approximates how many years it will take for your money to double, given a fixed rate of return. How does it work? For example, the Rule of 72 states that 100 rupees invested at an annual fixed interest rate of 10% would take approximately 7.2 years ((72/10) = 7.2) to grow to 200 rupees. In reality, a 10% investment will take 7.3 years to double ((1.107.3 = 2), thus a close approximate to get an understanding of your money's rate of doubling. And this is not all - the same logic can be used to get the rate of interest at which your money will double if you know the amount of time it'll take. Just reverse the equation - rate = 72/no of years!
Its Fun Time!! To find out how much time your money would take at various rates of interest and vice versa, have a look at the table below!
Rate of Return (%) Rule of 72(years)
2% 36.0
3% 24.0
5% 14.4
7% 10.3
9% 8.0
12% 6.0
25% 2.9
50% 1.4
72% 1.0
100% 0.72
You can also have a little fun by using this compounding calculator!
So that was it for this time’s update folks! Hope this helps you to take one step closer to becoming financially mindful! Incase you have any queries, feel free to reach back to us at gofinsnapper@gmail.com
Until next time;
Adios, Amigo! Team Finsnap