Lou Nihoul, CA License OL91861
Abracadabra!It's not a magic trick–it's the mental math shortcut everyone on Earth should know.
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.
Like magic, the result is the number of years it will take your money to double.
72 ÷ interest rate = years to double
Estimating doubles can help simplify money decisions. This is a practical formula.
The higher your interest rate, the fewer years it takes your money to double.
Select an interest rate:
72 ÷1% =72 years to double
How many times does your money need to double for you to have $1 million by the age of 67?
I'm 32 and I have about $50,000 in my retirement fund at work.
OK, TJ, let’s say you don’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 I’d be at $100k, then $200k, $400k, $800k… so about 4 doubles, right?
Correct, TJ! With only 35 years left until retirement, your money will have to double every...
…8 years! That's some fast doubling. What kind of rate of return would I need to get a double every 8 years?
You’d need a 9% rate of return, because 72 divided by 9 equals 8. That’s the growth you need to become a millionaire by retirement.
Wow. 9% is higher than I would have guessed. I’ll need my financial professional to help me aim at that. But at least I know the target now—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.
I’m a few years older than TJ. OK—more than a few. I’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 I’m 67?
That’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 out…
Fine. Let’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. That’s pretty straightforward. Now what do I do?
You’ve almost got it. The formula also works backwards. You can divide 72 by 9—because you want your money to double every 9 years—to get the interest rate you need to reach $1 million by retirement. Give it a try…
Sure. 72 divided by 9 equals 8—which means I need an 8% rate of return on my money. Huh. I wonder what rate I’ve been getting…
That would be worth finding out, Sarah. Time to call your financial professional. It’s amazing how the Rule of 72 creates urgency so we can become more savvy and strategic about our personal finances.
The national average interest rate for savings accounts is .06%.1
Apply The Rule Of 7272 ÷ .06% = 1200
Your Money Would Double In1200 years!
Compare that to
The national average interest rate for credit cards, which is over 16%.2
Apply The Rule Of 7272 ÷ 16% = 4.5
The Money You Owe Would Double In4.5 years!
So their money doubles every time there's a new Summer Olympics and ours doubles every time there's ...
... a new civilization. That's why everyone on Earth needs to know the Rule of 72.