The amount of time it takes for your money to double is the interest rate divided into 72.
When I learned this so many years ago and started playing around with it to understand it’s power it became an important part of my financial decision making.
So here’s an exercise to get you started. How much money would you have if you invested $10,000 for 18 years and it grew by 8% a year?
How about if it grew by 4% a year?
How much would you pay for a house (principal and interest) if you financed the whole $250,000 purchase price at 4% for 36 years?
How much interest would you pay on your credit cards if you let a $15,000 balance ride for 4 years?
Larry I am looking for more clarification as I’m a little puzzled by this. So let’s just work through the first example. Are you saying you do 72รท8? So it would take 9 years to double and then that $20k you would now have would become $40k at the end of another 9 years? Shoot me an email please, because I’m really curious about this formula
Ok none of the examples actually use the rule of 72 in their computations. but the rule says that the first example would say it takes about 9 years to double.
to answer the questions asked…. example 1 would earn $11589 if the interest were compounded annually. $4802.
at the 4% rate.
the cumulative interest on the house loan would be $213,295.
The money paid on a credit card with 18% interest in 4 years would be $15652
if it were compounded monthly……………..
Albert Einstein said compound interest is the most powerful force in the Universe.
FINANCIAL PLAN: Live on less than you make and don’t owe people money. ?