I bet you never knew that the number 72 was a powerful number!

If you have ever asked yourself the question, “how long will it take before my money doubles”, look no further than the Rule of 72. Before we had computers that would quickly calculate compound interest the Rule of 72 was used as a quick and easy way to figure out the “money double” question.

Remember, compound interest is your best friend! It is what will turn your IRA/401K into a sizable asset in your retirement. When compound interest is at work you can watch your money double, triple, and quadruple in size given a favorable rate of return.

To apply the Rule of 72 you must either know a) the Rate of Return, or b) the Number of Years. Let’s see it in action:

Rate of Return-

Let’s say you have $50,000 in your IRA currently. If you made no additional contributions how long would take for your money to double? Let’s assume a conservative 8% rate of return. (Tip: if you aren’t getting at least an 8% return on your IRA money, please seek the advice of a financial professional!)

We divide our power number (72) by our 8% rate of return= 9 Years.

So, in 9 years our $50,000 will now be $100,000 given no additional contributions.

Number of Years-

Let’s take our original $50,000 in our IRA. If you made no additional contributions how long would it take for your money to double? Let’s assume we would like our money to double in 6 years.

We divide our power number (72) by 6 years= 12% rate of return you would have to earn on our money.

Not only will learning the Rule of 72 impress all your friends and family members but it is a useful tool to use in everyday life. For instance you can use this Rule to figure out:

• how many years it will take you to reach your financial goals
• how many years you will need to save to have a down payment for your dream home
• how long must I save to afford a trip to Europe
• how long it might take before your home doubles in value

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