Rule of 72

I wonder why this type of topic is not being taught in school or university. If this is being introduce at the early stage, it would have been so helpful to many people and save many people a lot of time.

My mentor once said to me that he can know how wealth one person is by asking if they know what is rule of 72. This is a formula or rule of thumb to estimate the number of years required to double your money at a given fixed annual rate of interest. This is also related to compounded interest which is very powerful if you know this in detail.

A simple example would be if you have $100,000 and getting an annual interest of 8%. If you use 72/ 8 that would be 9. So it takes 9 years to double your $100,000 to be $200,000.

Eg 1

1st - $108,000

2nd - $116,640

3rd - $125,971

4th - $136,048

5th - $146,932

6th - $158,687

7th - $171,382

8th - $185,093

9th - $199,900

Eg 2

1st - $54,000

2nd - $58,320

3rd - $62,985

4th - $68,024

5th - $73,466

6th - $79,343

7th - $85,691

8th - $92,546

9th - $99,950

Both examples are very close to double up the amount. This is only an example and you can use your own number to calculate based on the interest.

So, one might ask well now I know how this works then how can it help me financially? This is the basic fundamental of the compounded interest. This is to show the power of compounded and if you let the small amount of money saved at one place and let it compound even at 1% or 2% in the long run, you will get a significant amount. Many people do not know or understand this hence they place all their money in the bank FD, property and even stock market. FD is the safest but also the lowest return which is a very conservative and traditional method not many will put their money into.

Eg. Current FD rate is below 3% so let’s take 3%. If you put $1,000,000 in the FD, it will give you at the end of 12 months $30,000. That is under the condition that you will not withdraw or move that amount of money so basically you have $100,000 stuck for 12 months in order to get that $30,000.

If you invest in $1,000,000 in property and we all know certain area and demand is high the property can shoot up 30% to 50% within a year. You are risking $1million for the $300,000 - $500,000 because if the market crash and demand is low your property will be stuck and you either hold the property till market become better or sell it with minimal loss to recoup your money.

If you invest in stock, same thing will happen because you can only buy when the stock market is low price so that when the price goes up, you can sell and make money. If the price drop to below your entry price, you will either hold it and wait for it to bounce back or sell it at minimal loss.

What if there is a way for you to control the risk down to minimum of 1% and gaining 3% consistently on daily basis. I just did a simple calculation if you have $500 at the beginning of 2021, if you let it compound on 2% daily, you will get around $55,000 at the end of the year. By raising the amount to $900 and if you let it compound at 2% daily, you will get around $100,000. Let me finish this off and it will simply blow your mind that by tweaking the compounded interest to 3% for initial of $500, you will get $567,844. Further more if you raise the initial to $900 and let it compound at 3%, you will get $1,022,120 by end of the year!

You can be a millionaire by end of 2021!