The Rule of 72
Divide 72 by your investment’s annual rate of return to estimate how many years it will take for your investment to double in value. This rule is a quick way to understand the impact of compounding interest over time. Here’s how the rule of 72 works, Imagine a simple rule that helps you estimate how long it takes for your investment to double. That’s the Rule of 72. Here’s the gist: divide 72 by your investment’s annual interest rate (expressed as a percentage) to get a rough estimate of the years it’ll take to see your money doubled.
Example of Rule of 72
Let’s say you invest ₹10,000 at an annual return of 7%. Calculating investment doubling time with the Rule of 72. Divide 72 by 7, and you get approx. 10.3 years. So, your ₹10,000 might grow to roughly ₹20,000 in 10.3 years.
Pros and Cons of Rule of 72
Pros |
Cons |
---|---|
No complex calculations needed, just a quick division. |
It’s an estimate, and actual doubling time may vary due to compounding frequency, fees, etc. |
Provides a general understanding of compounding interest’s impact. |
Ignores fluctuations in interest rates over time. |
Estimate doubling time for different investments and interest rates. |
Doesn’t consider factors like inflation or investment fees. |
Great for beginners to understand the concept of compounding. |
Doesn’t consider investment goals, risk tolerance, or diversification strategies. |
Get a quick estimated figure for investment goals. |
Doesn’t account for reinvesting dividends or capital gains, which can further accelerate growth. |
Top 10 Financial Rules for 2024
Financial wisdom tends to be timeless, with certain principles and rules enduring through changing economic landscapes and market conditions. As we look towards 2024, the following famous financial rules and principles are expected to remain highly relevant for individuals seeking to manage their finances wisely, invest effectively, and plan for the future,
Table of Content
- 1. The 50/30/20 Rule for Budgeting
- 2. The Emergency Fund Rule
- 3. The Rule of 72
- 4. Pay Yourself First
- 5. Diversify Your Investments
- 6. The 4% Withdrawal Rule
- 7. Avoid High-Interest Debt
- 8. The 20/4/10 Rule for Buying a Car
- 9. The Maximize Retirement Contributions Rule
- 10. The Home Affordability Rule