RULE of 72:Simple, handy and useful.

29 Jul 2018

In personal finance, if you divide the number 72 by the rate of interest, you get to know the number of years it will take to double your investmented money. For e.g. if the rate of interest of your investments is 9%, simply divide the number 72 by 9% and the answer is 8. Thus 8 years will take to double your money if you invest at 9% of rate of interest.

INTEREST: we can use this rule in reverse to know the rate of interest needed to double your investments to achieve your financial goals. Suppose you have 2.5 lakh today and you need 5lakh in 5 years. Just divide the number 72 by 5, the answer is 14.41%. Thus you need a type of investment avenue (preferably Mutual fund), where you earn at least 14.41% as rate of interest, to double your investment in 5 years.

INFLATION: This ‘Rule 72’ helps you to understand about inflation also. It helps you to calculate the amount of time it will take for inflation to make the real value of money half. Let’s say present inflation is 5.5%. When you divide 72 by 5.5% the answer is 13.09 years. That is to say, if you have 1 lakh in your kitty today, it would take around 13.09 years for the value of the money to be halved.

Hope it helps you in your day to day investments and activities.

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