Double Money in Your Savings With the Rule of 72

October 28, 2010 by In The News  
Filed under Internet Marketing Orlando

You want your money to grow rapidly . There could be multitude of reasons . They could include retirement, college expenses, down payment on a house or even to purchase motor toys .

It would be important to know how quickly your money would grow. Well you can know with the rule of 72. You can find out how long it takes your money to double at a given interest rate.  The way it works is that if you divide the annualized rate of interest into 72, the result will be about the number of years for your money to double.  A more accurate answer can be obtained if you have a compounding interest calculator or a simple interest calculator, but when you don’t the 72 rule can give you a good approximation.

An Example

Let’s look at an example: Suppose you need $20,000 for a down payment on your first home and you have $5,000 now. If you put it in a savings account that earns 6% a year, how long will it take to have $20,000 in your account? It is very simple to just divide 6 into 72 and you have 8 years. However, you need to double your money twice. The final answer is 2 x 8 = 16 years in order to have the total amount needed.

If there isn’t an exact number of doublings, then you need to do something called extrapolation. Don’t worry, it’s easy. If the amount needed is $15,000, then you would need to calculate how many doubles you need. One double then gives you double money at $10,000. The second double would give you $20,000. But you only need $15,000 or $5,000 more. $5,000 is half the distance between $10,000 and $20,000 or one half of a double. Therefore the number of money doubles needed is 1.5. The final result is then 1.5 x 8 years = 12 years.

Applications

You can apply this rule of 72 shortcut to many different things. These might include savings account growth , the ravages of inflation, and the growth of a non-amortized debt from the interest charged.  It can also be applied to non-financial things like bacteria growth and rabbit populations.

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