Definition: A mathematical computation that can be used to estimate how long it will take an amount of money to double at a certain interest rate, compounded annually.
Example: Number of years for investment to double: 8% interest annually takes approximately (72÷8) 9 years to double.
Example: Required rate of return: an investment to double in 10 years requires a rate of return of approximately (72÷10) 7.2%.
Example: Credit card debts: 10% interest - debt will double in 7.2 years. 19% interest - debt will double in 3.8 years.
Example: Inflation and purchasing power: 4% inflation will cause prices to double every (72÷4) 18 years.
Insight: To calculate how long for an investment to double, divide 72 by the interest rate. The result is the number of years it will take. The calculation assumes earnings are reinvested.
Insight: You can use the same logic to estimate the rate of return needed for an investment to double in a given number of years.
Insight: The same rules apply to debt, and inflation or purchasing power.
Principle: Use the Rule of 72 to focus on doubling wealth, not debts.
Insight: Use the Rule of 72 to determine how long it will take for money to double, at any rate of interest, just divide the interest rate into 72.
Insight: Spending even a little amount today means giving up a significant amount of money in the future.
Principle: Commit to investing a fixed amount for a long time.
Principle: Look for ways to free up money to invest.
Principle: Do not touch your money. Watch it grow.
Definition: A mental tool to estimate the length of time for money to double. Divide assumed growth rate into 72.
Example: Number of years for investment to double: 12 years at 6%.
Insight: When interest rates or expected rates of return are high, the amount of money needed today to reach a given future value is lower.
Definition: The Rule of 72 tells you how long it will take an investment to double, given a fixed compound interest rate.
Example: Number of years for investment to double: 9 years at 8%.
Insight: Money invested for a long time, even at a relatively low rate will produce huge gains over time.
Insight: The rate of scaling accelerates over time.
Definition: A quick trick you can use to work out how long it will take to double your money. Divide 72 by the rate of return.
Example: Number of years for investment to double: 7.2 years at 10%.
Principle: Use the power of compounding to increase your wealth.
Definition: It takes 72 years to double your money at 1% compounded rate.
Insight: A better rate of return has a huge impact on the time it takes for wealth to grow.
Insight: Financial freedom can be achieved in shorter time when you learn how to generate better returns.
Definition: Given a percentage rate, the Rule of 72 is a rule of thumb to estimate how long it will take money to double. Divide 72 by the interest rate.
Insight: The rule approximates, but is useful for quick decision making.
Definition: Determines how long it will take for money to double at any interest rate. Divide the interest rate into 72.
Example: Number of years for investment to double: 9 years at 8%.
Insight: The key to compound interest is to put money away and never touch it.
Definition: A shortcut way to see how quickly you can grow your money. Divide the interest rate into 72 for the number of years it will take to double.
Example: Number of years for investment to double: 12 years at 6%.
IV. Summary of Key Insights & Principles
Personal Finance
To estimate how long it will take an investment (or debt) to double, given a specific compound interest rate, divide the expected rate into 72.
Expected returns greatly influence how long it will take for investments to grow over time.
Spending today means giving up a significantly larger amount of money in the future.
Money invested for a long time will produce huge gains.
Financial freedom can be achieved faster if you can figure out how to generate higher returns.
Commit to investing over long time.
Constantly look for money to invest.
Do not touch your investments.
Use the power of compounding to increase your wealth.
