Does Money Really Double Every 7 Years? How Can The Rule Of 72 Help You?
Rule 72 provides a simple method for calculating the time frame in which you can double your money. You may have found additional useful formulas for calculating the length of time it will take for your money to double, or you may have come up with your own scenarios for how to do so. It's possible to get answers to your queries and double your money by using the rule 72 formula. What is this rule 72 for doubling your money, you may wonder?
Author:Stefano MclaughlinReviewer:Luqman JacksonMar 09, 202268.5K Shares913.4K Views
Rule 72 provides a simple method for calculating the time frame in which you can double your money. You may have found additional useful formulas for calculating the length of time it will take for your money to double, or you may have come up with your own scenarios for how to do so. It's possible to get answers to your queries and double your money by using the rule 72 formula. What is this rule 72 for doubling your money, you may wonder?
What Is The Rule Of 72
When it comes to investing money, you may use the Rule of 72 to figure out the best ways to get the most out of your money. Divide 72 by the yearly rate of return that the investor receives or has estimated the time it will take for their money to double.
In other words, the 72-year rule teaches you exactly how to double your money with a high degree of certainty and without a lot of risk in just about seven years, if not less.
The Rule of 72 can be employed psychologically, but there are many additional formulas in spreadsheets and Excel that can tell you when to expect a double of your money. So, using the rule of 72, you may be able to determine whether or not money doubles every seven years. Then how do you go about it?
Rule Of 72 Formula
The formula to calculate does money double every 7 years is as follows:
- Years to Double = 72 / Interest rate
Where in the above formula to determine does money double every 7 years:
- Interest Rate = Rate of return on an investment
As for reference, you can see that:
- With 6 percent ROI: You get 6 % return if you want to know the time by which your money doubles you will divide 72 by 6 percent as follows:
Years to Double = 72 / Interest rate
Time money doubles = 72 / 6 % = 12
Thus, by the 12 years, your money will get double with a 6 percent return on your investment.
- With 7 percent ROI: You get 7 % return if you want to know the time by which your money doubles then you will divide 72 by 7 percent as follows:
Years to Double = 72 / Interest rate
Time money doubles = 72 / 7 % = 10.2
Thus, by 10.2 years your money will get double with a 7 percent return on your investment.
- With 8 percent ROI: You get 8 % return if you want to know the time by which your money doubles then you will divide 72 by 8 percent as follows:
Years to Double = 72 / Interest rate
Time money doubles = 72 / 8 % = 9
Thus, by the 9 years, your money will get double with an 8 percent return on your investment.
- With 9 percent ROI: You get a 9 % return if you want to know the time by which your money doubles then you will divide 72 by 9 percent as follows:
Years to Double = 72 / Interest rate
Time money doubles = 72 / 9 % = 12
Thus, by the 12 years, your money will get double with a 9 percent return on your investment.
- With a 10 percent ROI: You get a 10% return if you want to know the time by which your money doubles then you will divide 72 by 10 percent as follows:
Years to Double = 72 / Interest rate
Time money doubles = 72 / 10 % = 7.2
Thus, by the 7.2 years, your money will get double with a 10 percent return on your investment.
Calculating The Rule Of 72
We'll show you how to multiply money using the 72 rule in this article:
We can see that if the rate of return on investment or interest rate is 8%, the sum will double in 72 years (72 / 8 = 9 years) as per rule 72. We've used an annual compound return of 8%, however we've written it down as 8% rather than 0.08, resulting in a time span of 9 years to double the money.
By taking the natural log of integers, the above rule 72 formula is constructed by utilizing a simple sort of the original logarithmic calculation and using some complicated functions in that logarithmic calculation.
As a result, for an investment that earns a compounded interest rate or return on investment of r percent per period, the exact time to determine doubling time is as follows:
- T = ln ( 2 ) / ln ( 1 + ( r / 100 ) )
OR
- T = ln ( 2 ) / ln (1 + (r %) )
Where in the above equation time to calculate doubling time for an investment:
- T = is referred to as Time to double
- ln = is referred to as the Natural log function
- r = is referred to as the Compounded interest rate per period
- ≃ = is referred to as Approximately equal to
So, you can use the above discovered formula how much actual time will it take for an investment of 8 % annually to get double as follows:
T = ln ( 2 ) / ln ( 1 + ( 8 / 100 ) ) = 9.006 years
9.006 years found by the above exact formula is much close by to the approximate value obtained by (72 / 8) = 9 years
As by now you might have understood that log functions are not handy and easy option to do mental calculations quickly. Therefore, we use the rule of 72 formula that makes use of the factor of 72 and a much easier option and delivers approx. the same result as the longer actual log formula.
Rule Of 72 And Natural Logs
As you know by now that rule of 72 uses natural logarithms. Where you might also be knowing that the logarithm is the opposite of a power; for example, the opposite of 104 is log base 10 of 10,000.
So:
- Rule of 72 = ln ( e ) = 1
where:
- e = 2.718281828
Note: As you know in mathematics e is a famous irrational number just like we use pie as an e is a famous irrational number. And the value of e is 2.718281828.
And, the TVM (time value for money) formula is as:
- Future Value = PV × ( 1 + r ) nwhere:
PV = Present Value r = Interest Rate n = Number of Time Periods
- Step 1: And if you want to know does money double you mark down the future value as 2 and mark down the present value as 1 in the above formula as follows:
2 = 1 × ( 1 + r ) n
- Step 2: And by simplifying the above equation you get:
2 = ( 1 + r ) n
- Step 3: And in order to remove the exponent in RHS or right side of the equation we will take log both the side as follows in the next step on both the side:
ln ( 2 ) = n × ln ( 1 + r )
- Step 4: Simplifying the equation, we get,
ln ( 2 ) = r × n
- Step 5: Now, quoting the value of The natural log of 2 which is 0.693
ln ( 0.693 ) = r × n
- Step 6: Now, dividing both sides by the interest rate, you get the following:
0.693 / r = n
- Step 7: Now, expressing this as a percentage you get the formula as follows:
69.3 / r % = n
Rule Of 72 Examples
We have quoted the following examples that will help you understand how to double your money?
Example 1: If you capitalize a sum of money at 6 % interest per year, how long will it take to double your money or investment?
Solution: Using the 72 rule formula as:
- R * t = 72
Where in the above formula:
- R = interest rate per period as a percentage
- t = number of periods
Therefore, putting the values as follows:
T = 72 / R = 72 / 6 = 12 years
Example 2: what interest rate would double your money in 5 years?
Solution: Using the 72 rule formula as:
- R * t = 72
Where in the above formula:
- R = interest rate per period as a percentage
- t = number of periods
Therefore, putting the values as follows:
R = 72 / t = 72 / 5 = 14.4 %
Example 3: If you invest a sum of money at 0.5% interest per month, how long will it take to double your money or investment?
Solution: Using the 72 rule formula as:
- R * t = 72
Where in the above formula:
- R = interest rate per period as a percentage
- t = number of periods
Therefore, putting the values as follows:
T = 72 / R = 72 / 0.5 = 144 months
Note: here, in the above example r, which stands for the rate of interest is given in months therefore we have obtained our answer of the period in which money gets double in months only.
Example 4: How can you double up your money in 1 year?
Solution: For doubling the money in a year with real account rule:
- Years to Double = 72 / Interest rate
Where in the above formula to determine does money double up:
- Interest Rate = Rate of return on an investment
Interest Rate = 72 / 72 = 1 year
Thus, you need to search for an interest rate on investment offered at 70 to 72 % as to double your money.
Usage Of The Rule Of 72
The 72 rule can be applied to a variety of situations in your life to determine the value of investments and the time it takes for them to double in value. As a result, you can apply the rule while investing in the following types of assets that customers find profitable to invest in and increase their money in:
- Stock market: If you want to make the most money in the quickest amount of time, you might choose the stock market, which offers a decent return on investment (ROI) to investors, albeit there are risks involved. As a result, one of the finest ways to invest money is through the stock market. You can also invest in equities through an employer-sponsored 401(k) plan, which has doubled in value every seven years for investors. As a result, there's a good likelihood of making money.
- Bank fixed deposits: You can also utilize bank FDs to deposit money and receive interest, albeit this is a long process that requires patience and time on the part of the investor. An interest rate of roughly 8% to 9% can be attained in this area.
- Mutual funds: Mutual funds are also a good option to invest money, and you may expect to get double the money you put in within 6 to 7 years. Although there is a market risk aspect here as well, you should be well-versed in the market and thoroughly study it before investing in mutual funds.
Double Your Money In A Day
The following are some ways you can double your money in one day:
- Investing in the Stock Market
- Investing in the Real Estate Sector
- Lend Your Money to gain interest charged
- Open a savings account
Rule 72 Calculator
Using the time-to-double-money calculator, you may estimate how much money doubles every seven years, save time, and avoid costly mistakes. There are a number of rule 72 calculators available online that can be used to do this task.
FAQ
- How often should you double your money?
By dividing 72 by your rate of return, you may calculate the amount of time required to double your money. As an example, if you have invested or are prepared to invest money at a 10% interest rate, your money will be doubled in T= 72 / 10 = 7.2 years.
- How can I make a year's worth of money?
To figure out how long it will take to double your money, divide 72 by your estimated annual rate, which will give you the number of years it will take.
- In 20 years, how much will $100,000 be worth?
Your savings of $100,000 will have grown to $320,714 after 20 years. Assume you receive $ 220,714 in interest on a $100,000 investment made ten years ago.
- How long will the money in the bank double?
To calculate the time it takes for money in the bank to double, you must first know the bank's Annual Interest Rate. Then you must divide 72 by the bank's annual interest rate, which will provide you with a time when your money will have doubled. For example, if the bank gives an annual interest rate of 8%, then:
T = 72 / R = 72 / 8% = 9 years T = 72 / R = 72 / 8% = 9 years If the bank offers an annual interest rate of 8%, it will take 9 years for the money to double.
- In 20 years, how much will $500 be worth?
Your $500 savings will have grown to $1,604 by the end of 20 years. As a result of the $ 500 you invested 10 years ago, you will receive $1,104 in interest.
Conclusion
To get your money back, Rule 72 provides an easy approach to mentally compute the time period. Useful formulas for figuring out how long it will take for your money to double might be found all over the place. You might also think of ways in which you can double your money. Rule of 72 is a formula you can use to figure out how long it will take for your money to double.
Stefano Mclaughlin
Author
Luqman Jackson
Reviewer
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