Rule of 72 | HowMoneyWorks

It's not a magic trickâ€“it's the mental math shortcut everyone on Earth should know.

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## How It Works

The Rule of 72 is a simple formula that can be used to approximate the number of years it will take for your money to double.

You simply divide 72 by your interest rate.

### Presto!

Like magic, the result is the number of years it will take your money to double.

### 72 Ã· interest rate = years to double

Estimating doubles can help simplify money decisions. This is a practical formula.

## It's All About The Interest Rate

The higher your interest rate, the fewer years it takes your money to double.
Select an interest rate:
72 Ã·
72 Ã·
1%
= 72 years to double
72 Ã·
3%
= 24 years to double
72 Ã·
6%
= 12 years to double
72 Ã·
9%
= 8 years to double
72 Ã·
12%
= 6 years to double

## Will you retire a millionaire?

The higher your interest rate, the fewer years it takes your money to double.
I'm 32 and I have about \$50,000 in my retirement fund at work.
OK, TJ, letâ€™s say you donâ€™t add any more money to your retirement fund. How many doubles do you need to have \$1 million when you turn 67 years old?
Simple math. I got this. After one double Iâ€™d be at \$100k, then \$200k, \$400k, \$800kâ€¦ so about 4 doubles, right?
Correct, TJ! With only 35 years left until retirement, your money will have to double every...
â€¦8 years! That's some fast doubling. What kind of rate of return would I need to get a double every 8 years?
Youâ€™d need a 9% rate of return, because 72 divided by 9 equals 8. Thatâ€™s the growth you need to become a millionaire by retirement.
Wow. 9% is higher than I would have guessed. Iâ€™ll need my financial professional to help me aim at that. But at least I know the target nowâ€”and as my dad says, "you'll never hit a bullseye with your eyes closed."
Good thinking, TJ. And good luck using the Rule of 72 to shoot straight.
Iâ€™m a few years older than TJ. OKâ€”more than a few. Iâ€™m about to turn 50 if you must know. If I have about \$250k in savings, what interest rate do I need to have \$1 million by the time Iâ€™m 67?
Thatâ€™s only 2 doubles, Sarah. \$250k to \$500k, and then \$500k to \$1 million. See if you can use the Rule of 72 to figure it outâ€¦
Fine. Letâ€™s see. At 49 years old, I have 18 years before I turn 67. Since my money needs to double twice, it has to double every 9 years. Thatâ€™s pretty straightforward. Now what do I do?
Youâ€™ve almost got it. The formula also works backwards. You can divide 72 by 9â€”because you want your money to double every 9 yearsâ€”to get the interest rate you need to reach \$1 million by retirement. Give it a tryâ€¦
Sure. 72 divided by 9 equals 8â€”which means I need an 8% rate of return on my money. Huh. I wonder what rate Iâ€™ve been gettingâ€¦
That would be worth finding out, Sarah. Time to call your financial professional. Itâ€™s amazing how the Rule of 72 creates urgency so we can become more savvy and strategic about our personal finances.

## The Hazard of Not Knowing the Rule of 72

The national average interest rate for savings accounts is .42%.1
Apply The Rule Of 72
72 Ã· .42% = 171
.42%
Your Money Would Double In
171 years!
Compare that to
The national average interest rate for credit cards, which is over 20%.2
Apply The Rule Of 72
72 Ã· 20% = 3.6
20%
Your Money Would Double In
3.6 years!
So their money doubles every time there's a new Summer Olympics and ours doubles...
...every 3 generations?! That's why everyone needs to know the Rule of 72.

## There's over \$10 trillion of consumers' money stagnating in savings accounts averaging only .42% annual interest.3

3. https://www.federalreserve.gov/releases/h6/current/
The Rule of 72 can help protect you from gimmicky promotions from banks, settling for opportunities that donâ€™t give you the advantage, and taking on debt that might take forever to pay off.
Reach out to learn more about how the Rule of 72 impacts your life.

### Free Chapter

Download the entire Rule of 72 chapter from HowMoneyWorks: Don't Be a Sucker.
Click the confirmation link in the email you receive.
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