Following yesterday’s inflation announcement and having read a tweet saying that at the announced rate of 3.6% it will take 20 years for your money to half in value….I was reminded of the really useful Rule of 72…
Quite simply, it’s a quick and easy way to mentally calculate how long it will take money to either double or half in value, given a fixed rate of interest….take the above…72 divided by 3.6 equals 20…..72 / 3.6 = 20
It works both ways, whether you want to know how quickly your money will double in value or half, here’s some examples to demonstrate its simplicity…
At an investment growth rate of 6%, it will take 12 years for your money to double………72 / 6 = 12.
To double your money in 10 years, you will need an investment return of 7.2% per annum….. 72 / 10 = 7.2.
If university fees increase at 5% per year, fees will double in just over 14 years ….72 / 5 = 14.4
Savings rates are at very low levels. An account that pays 2% as opposed to 2.5% may not seem a very big difference but it will take 7 years longer at the lower rate for your money to double in value.
The rule of 72 is generally used for quick estimates and becomes less accurate the higher the percentage used, but it certainly is a handy rule to be aware of.
A final thought for the optimists amongst you… how about the rule of 114…this will give you an indication as to how long it will take to triple your money !