E L Emerson
There is one number in particular that you’ll want to keep front-of-mind as you set off on the road to financial freedom in 2018.
That number is “72.”
The Rule of 72 tells us in simplest terms how to figure out how long it will take you to double your money. And that’s important because it lets you know how hard, or otherwise, your money is working for you wherever you have it invested, on deposit or even under the mattress.
The formula is easy to use. Here’s how it works:
- If you have £1,000 in a deposit account, and that money is earning 1% interest (that’s a pretty standard savings account interest rate just now), it will take you 72 years to turn that £1,000 into £2,000. The formula works like this: 72 / 1 = 72 years.
- Now, if you have that same £1,000, and your money is invested and earning 4% interest each year, then it will take you significantly less time to double your money (72 / 4 = 18 years).
- And if you’re fortunate enough to be earning an average return of 12% on your money then you’ll only be waiting six years to double your investment (72 / 12 = 6 years).
So, the next time you’re speaking with a banker and they’re telling you about their new super-duper, high interest rate, action-packed deposit account that comes with a 0.99% interest rate and a free lollipop, you’ll know that it will take you about 72 years before the money in that account will double in value.
And if that timeframe suits your needs then so be it.
E L Emerson, Editor, HNW
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