Do you know the Rule of 72? You should. Everyone should.
The Rule of 72 is used when we talk about compound interest, whether it is working for you (when you invest) or against you (when you borrow).
It says that the number of years it takes your money to double is the annual interest (appreciation) rate divided into 72. So, if you were earning a 10% appreciation, it would take 7.2 years for your money to double. If you were paying credit card interest of 21% and you paid principal only, you’d pay as much in interest as you owed on the card in just over 3 1/2 years.
Why is this important? Well, it gets really important when you look at a longer and longer time frame. For for example if you earned 7.2% and left the interest in the account to compound, your money would double in 10 years. It would double again (4x) in 20 years, and double again in 30 years (8x).
Now what about 10% interest – just 2.8% more? Well, your money would double in 7.2 years, and double again (4x) in 14.4 years, and double again (8x) in 21.6 years, and double AGAIN (16x) in 28.8 years. So the difference between 7.2% and 10% over 30 years is the difference between 8x and 16x! That’s a huge difference.
What about 18%? Your money doubles in 4 years. In 30 years? – an astonishing 192 times its original value!
Understand this. Know it. Play with it and doodle scenarios. Learn how. Not many people know how, so you won’t get answers from many places. By definition, it is extraordinary. Not ordinary – even to people in the “investment business”.
Money math. Learn, play on paper, figure, understand, and plan. Be smarter than the ordinary person.