The Rule of 72 is a basic rule that each and every investor should know. The rule is commonly used to determine how many years will it take for your money to double. The equation is simply this, 72 divided the interest rate equals the number of years it takes for your money to double. For more information on this you can read my blog post entitled “An audio visual presentation of the Rule of 72” and “The Magic of the Rule of 72” For a more practical application of the Rule of 72, read the blog post entitled “Want to get wealthy ? Think like the bank” But the usage of the Rule of 72 is not only limited to investments. The Rule of 72 can also be used when it comes to managing debt wisely. The Rule of 72 could be written as follows: 72 / interest rate = number of years for your debt to double By using this equation, you can take any debt you have with your credit card company or your mortgage lenders and determine how many years will it take for your debt to double. As an … [Read more...]
An audio visual presentation of the Rule of 72
I have written extensively on the Rule of 72. I firmly believe that knowing this rule is important because it is the foundation of all financial planning. In order to further understand what the Rule of 72 is all about watch this short youtube video clip on the Rule of 72. Knowing what vehicle of investment to use to get a higher interest rate in order to quickly double your money will be the subject of other posts. If have made a special highlight of this rule in my blog and subjected it to outdoor lighting so to speak. If you would like to know more about the Rule of 72 and it's application read my previous posts on the subject: Want to get wealthy ? Think like the bank The Magic of the Rule of 72 … [Read more...]
Want to get wealthy ? Think like the bank
Once upon a time an Overseas Filipino Worker (OFW) started working abroad. At the age of 29 he had already saved a total of P 100,000.00 (Philippine peso) Since the only investment vehicle he knew about was putting his money at the bank he went to the bank and deposited his P 100,000.00. The bank manager gladly accepted the money and even recommended that he put it at a time deposit account so that it would yield a higher interest rate at 4 % per annum. So he placed his money in the time deposit account and waited until he reached the age of 65. At the age of 65 he went back to the bank and asked to withdraw the P 100,000.00 in his time deposit account. Lo and behold his P100,000.00 already became P 400,000.00 because of the interest. So he withdrew his money from the bank and lived happily ever after. Is this a “live happily ever after” story or not? Do you consider this OFW as somebody who has “wisely” handled his money? Is he really earning the maximum potential for his … [Read more...]
The Magic of the Rule of 72
“The most powerful force in the universe is compound interest” – Albert Einstein. Albert Einstein’s greatest discovery was not the theory of relativity, it was the Rule of 72. (Although some people say that the rule existed long before he was born, most would agree however that he has popularized it) What has the Rule of 72 have to do with investing? Basically knowledge of the Rule of 72 is the basic building block of learning that each budding investor should have. Simply stated the Rule of 72 helps you determine the following: 1.) What interest rate you should avail of in order for your money to double quickly. 2.) How many years does it take for your money to double. In a nutshell the Rule of 72 is stated as follows: 72 divided by interest rate return = No. of years it takes for your money to double. So, if you put P 100,000.00 in a bank account, it will take 72 years for your money to become P 200,000.00 since the bank only … [Read more...]