What Is The Rule of 72?
The Rule of 72 is a method used to quickly calculate the doubling and halving time of any growth rate: ie, investments, inflation, expenses, population, etc. For investors, it is essentially a shortcut for calculating compound interest on investments, the way to build wealth. It is important to note that the Rule of 72 calculations are rough estimates compounding at rates between 6% – 10%. For rates below 6%, 69.3 is a more accurate factoring number and for higher rates, adjust the rule quantity (72) by 1 for every three percentage points above 8%.
The Formula
The formula is rather simple: divide the rule quantity by the expected growth rate (interest rate).
72 / i = years to double/halve
69.3 / i = years to double or halve
Examples
How long will it take a $1000 investment to double with 3%, 8% and 14% interest?
69.3 / 3 (interest rate) = 23 years
72 / 8 (interest rate) = 9 years
74 / 14 (interest rate) = 5 years
If you pay 10% interest on your credit card, how long will it take the amount owed to double?
72 / 10 (interest rate) = 7 years
If the population is growing at a rate of 7%, how long will it take the population to double?
72 / 7 (growth rate) = 10 years
At 4% inflation, how long will it take the value of a $1 to halve?
69.3 / 4 (inflation rate) = 17 years
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