Personal Development, Business, Finance, and Investing for Everyone
An investment in knowledge always pays the best interest.
The most important and simple rule to financial success can be easily discovered by knowing the Rule of 72.
What is the Rule of 72?
The Rule of 72 is a method by which a person can quickly calculate the rate of return required for their investment to double in a certain period.
Where is the Rule of 72 originated?
According to online sources, the Rule of 72 came from Luca Pacioli, a renowned Italian mathematician. He mentions the rule in his 1494 book 'Summa de arithmetica, geometria, proportioni et proportionalita' or translated in English 'Summary of Arithmetic, Geometry, Proportions, and Proportionality.'
In wanting to know of any capital, at a given yearly percentage,
What is the formula for the Rule of 72?
The Rule of 72 can be expressed simply as:
Number of Years = 72 / Rate of Return
Rate of Return = 72 / Number of Years
Here's an example:
Steph makes an investment of Php 100,000 and she wonders how long it will take to reach Php 200,000. She estimated a 10% rate of return. She divides 72 by 10% and estimates it will take 7.2 years to grow to Php 200,000.
Uses for the Rule of 72
There are three main reason to use the Rule of 72 to analyze an investment.
It can help investors understand the long-term significance of what may seem like fairly minor differences in return.
An investor seeking to double his money in a certain number of years can find the interest rate needed to get there in that amount of time.
Use it on other formulas with a compounding return, including population growth, gross domestic product, cost of living, and so on.
You can download my free Rule of 72 Calculator template here.
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ABOUT THE BLOGGER
Hi, I'm Ralph Gregore Masalihit!
An RFP Graduate (Registered Financial Planner Institute - Philippines).
A Personal Finance Advocate. An I.T. by Profession. An Investor. Business Minded. An Introvert. A Photography Enthusiast. A Travel and Personal Finance Blogger (Lakbay Diwa and Kuripot Pinoy).
Currently, I'm working my way toward time and financial freedom.