The Rule of 72 (Compound Interest)

Have you ever heard of the Rule of 72? A few of us might have learned about this in grade school, others maybe in business school, however so, It’s the magic of Compounding Interest!

One of the most important discoveries for investors to show them how money doubles if not taxed. Knowing this helps in calculating how quickly your wealth will grow.

Another point of interest that’s crucial to mention is the rule of 72 works in both ways! It can grow your money (Yah!) or/and it can show you how your credit card debt is growing against you! (oh No!)

Have you ever had a high credit card balance…, you paid the bill every month on time and despite numerous payments the balance of the bill seems to barely go down? It’s due to the fact high interest on the card compounds!

As an example; 72 divided into 8% = 9.

72 is the factor, 8% is the annual return on the investment and 9, equals the years it would take to double your investment.

Let’s say though you have 1,000 on a credit card and your interest rate payable is 22%. Your interest payment alone will be around $18.33. The balance will double every 3.27 years if not paid in full.

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