By Deborah Nayrocker
Dear Deborah: What is the “rule of 72?” – A Reader
Answer: This is an easy way to calculate how long it takes to double your money at various interest rates. Divide 72 by the yield, or interest, you expect to earn. The resulting answer tells you how long it will take for your money to double.
For example, if your investment earns four percent in interest annually, take 72, divide it by 4, and you get 18. It will take 18 years to double the money.
The rule works in reverse, as well. If you want to double your money in twelve years, divide 72 by 12 and the result is that you will need an average growth rate of 6 percent.
The rule of 72s offers a close estimate for growth rates as you save.
Deborah Nayrocker is an author and columnist. She is the award-winning author of The Art of Debt-Free Living and Living a Balanced Financial Life.
Copyright by Deborah J. Nayrocker. All rights reserved.