Personal Finance Tips - Rule of 72

In the next couple of weeks I will be posting useful personal finance tips to help you in attaining your financial goals.These tips and tools are intended for people who are just starting to organize their personal finances.

Most of us are always fascinated with the marketing slogan of double your money in a specific number of years. This marketing strategy has been used in a lot of financial institution to advertise their products. Most of these institutions usually don't specify their interest rates on their ads.

 The RULE OF 72 is a great tool for you to calculate the interest rate od these products. The RULE OF 72 is usually used to compute how long it takes for your money to double for a particular interest rate. This is applicable to compounding interst rates wherein the interest  earned will eventually earn interest.

Below is the formula and a sample on how you can use the RULE OF 72.

FORMULA:

72 / INTEREST RATE = NO. OF YEARS INVESTMENT WILL DOUBLE

SAMPLE:

A Time deposit offering a 3% per annum interest rate.

72 / 3 = 24 years

Your investment will double every 24 years

FORMULA:

72 / NO. OF YEARS INVESTMENT WILL DOUBLE = INTEREST RATES

SAMPLE:

A bank offers a long term tax exempt time deposit DOUBLE YOUR MONEY in 10 years product.

72 / 10 = 7.2 %

Interest rate for the product is 7.2%



The RULE OF 72 is a great simple tool to aide you in deciding which product to invest. This will help you determine how long it will take you to reach your goal fora particular product.

2 comments :

  1. Awesome tips shared for personal finance management. Great post.

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