Entrepreneur Magazine and Forbes, the most prominent issue in our world happens to be money. It is the leading cause of depression and often the precursor to conflicts between business partners! To this day, I find it astonishing that most people, both young and old, lack any insight as to what the Rule of 72 is! Whether you are an entrepreneur or mother of four, if you have not taken the time to inform yourself on this concept of saving money, you need to start immediately.
In short, the Rule of 72 is a simple equation that determines exactly how long it will take for your money to double within your banking or savings account. This becomes a highly important concept when deciding on “when” to start saving and how much to expect when doing so. By understanding exactly what your money is doing when you put it away, you give yourself the power to do some extreme financial planning for both your family and future!
According to Investopedia, the formula that gives rise to the Rule of 72 is actually very simple. Start out by taking the number “72” and dividing it by your current or expected compound interest rate. The resulting number will tell you exactly how many years it will take for a sum of money, say a $10,000 investment, to double, which would bring that account’s worth to about $20,000. Below is a brief overview of a $10,000 investment and its growth for three popular interest rates.
As previously mentioned, the Rule of 72 becomes a vital asset to financial planning when you are looking at years into the future. Based on statistics and values provided by Primerica, after you do the math, you will begin to realize the difference between keeping your money in a savings account with 3% interest, as opposed to a mutual fund that has the potential to reach upwards of 12%. If you take anything away from this blog post, be sure to capitalize on your financial planning. Take the time to familiarize yourself with various aspects of money because chances are you would not have learned this in school! Don’t be afraid to hire a financial consultant to help you double and triple check your current ways with money. Professional planning will ensure that you set yourself up for a future of financial freedom.
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