It's Simple, Just Use the Rule of 72

Sunshine Coast Daily (Maroochydore, Australia), November 16, 2010 | Go to article overview

It's Simple, Just Use the Rule of 72


HAVE you ever tried to work out the effect of inflation on your savings? Use the Rule of 72. Do you wonder how long it will take for your home to double in value? Use the Rule of 72. Would you like to know an easy way to do compound interest calculations in your head? Yes, you've guessed it. Use the Rule of 72. The best part is that you don't have to be a mathematician to use the Rule of 72. It's simple, but once you understand how to use it, you'll wonder how you got by without it.

Divide the number 72 by the expected rate of return Co the answer is the number of years it will take for a given sum to double at the expected compound rate of return:

Suppose your home is worth $400,000 today and you predict it will increase by 7% per annum. Divide 72 by 7% and the answer is close to 10. If your prediction is correct, your house will be worth around $800,000 in 10 years time, and $1.6million in 20 years time.

Are the figures correct? Yes the figures are correct, but nobody knows if the house values will perform as you have just predicted. …

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