Jan 04

## The Rule of 72

I mentioned the Rule of 72 in casual conversation a week or so back, and quickly realized that there are many who don’t know what it is.
So it seemed a good idea to give a brief explanation of this rule.
Simply put, given an interest rate, say 8%, it will take 72/8 = 9 years for money to double. Got that? The rate, taken as a whole number times the years equals 72.

The rule isn’t perfect, as the chart above (produced by Michael Jameson Money) shows. when we calculate the exact time to double for any given rate and multiply, we get a series of points that shows the rule of 72 is only exact for a single point, an interest rate of 7.847%. Still the rule is good enough for an estimate. At 6%, I’d guess money will double in 12 years, so over a 36 year period it will increase eightfold. A quick calculation shows a result of 8.14 a 2% error over that 36 year period. Of course there are times when you need an exact answer to a given math problem, but for those times when it’s “close enough” the rule of 72 is good to know.

written by Joe \\ tags: , ,