The Rule of 72 is a quick, useful formula that is popularly used to estimate the number of years required to double the invested money at a given annual rate of return.
The Formula for the Rule of 72 Is
Key Points :
- The rule of 72 only works with Compounding effect.
- The Rule of 72 is a simplified way to estimate the doubling of an investment's value, based on a logarithmic formula.
- The Rule of 72 can be applied to investments, inflation or anything that grows, such as GDP or population.
- The formula is useful for understanding the effect of compound interest.
72/Rate of Interest = Years to double the investment.
Let's understand with an example. Let say I want to invest 1000 rupee with an annual compound interest @8% then my investment will become 2000 rupee in 9 years.
72/8 = 9
I want to invest 1000 rupee with an annual compound interest @12% then my investment will become 2000 rupee in 6 years.
72/12 = 6.
This is how you can calculate compound interest calculations easily at least for factor of 72.
3% will take 24 years to double the money.
4% will take 18 years6% will take 12 years
8% will take 9 years
9% will take 8 years
12% will take 6 years and so on...