Estimate How Long To Double Your Money Using Rule of 72

Estimate How Long To Double Your Money Using Rule of 72

Rule of 72 is a simplified formula used to estimate how long it takes to double your money based on compounding interest calculation. Besides, it tells you also how fast your money will become half of its value due to inflation.

For layman who is not familiar with scientific calculator or financial calculator, Rule of 72 formula is one of the best ways to do fast calculation and basic analysis on compound interest investment.

COMPOUND INTEREST EXAMPLES

Example 1: Assumed you have invested RM50,000 into a investment product that give you interest rate of 6% per annum. That means twelve (12) years later, RM50,000 become RM100,000

Years Required to Double Your Money,
= 72 ÷ Interest Rate
= 72 ÷ 6
= 12 years

Example 2: Assumed you have invested RM10,000 into a investment product and expect to double the money within 8 years. Hence, ROI 9% per annum is required to achieve your target.

Interest Rate Required to Double Your Money within Targeted Time Frame,
= 72 ÷ Number of Years Targeted to Double Your Money
= 72 ÷ 8
= 9% per annum

HOW FAST INFLATION DEPRECIATES YOUR VALUE OF MONEY?

Example 3: Assumed inflation rate fixed at 4%, your RM20,000 become half of its value after 18 years.

Years Required to Half your Money,
= 72 ÷ Inflation Rate
= 72 ÷ 4
= 18 years

Generally, the Rule of 72 has increased my ‘financial sense’. That’s why I would like to share it with readers here and I believe you are able to master it within an hour. Treat it as mind training. Have fun with the simple math practice and invest your money wisely. All the best