Your Money Doubled or Halved? Know the rule of 72

Wouldn’t it be nice to know with one simple calculation how long your investments or wealth savings will take to double in value? The good news is you don’t need complicated models or spreadsheets to work out how long your investments or savings will take to double in value. Simply use the *Rule of 72.

The rule of 72 can be used to determine how long an investment will take to double based on the annual rate of interest.

Dividing 72 by the annual interest rate (rate of return) gives us an idea of how many years it will take for our initial investment to duplicate itself. Sounds pretty simple and easy? It is, here’s an example:

If an investment has a 7% annual rate of return, it would take approximately ten years for it to double in value (72 / 7 = 10.2).

How to use the Rule of 72

The Rule of 72 is a helpful method for you to work out how many times your investment needs to double to meet your financial goals. It also helps you to compare investments.

Let’s take a regular transaction account with a major bank. Most banks pay 0% on transaction accounts. So let’s be generous and say your money was deposited in a regular savings account. You may be earning 2.50% p.a. (major bank savings rate at time of writing).

Let’s use our new rule to examine the maths:

• 72/2.50 = 28.8. It will take over 28 years for your money to double!!

Not very encouraging is it?

Let’s look at another example using a higher rate of return.
Say you invest $50,000 into an asset which produces an annual rate of return of 8%.
72/8 = 9. Using the Rule of 72, it would take NINE (9) years for your investment to double to $100,000.

If your goal was for this investment to reach $400,000 in value, you would need the investment to 3X (double 3 times).

1. $50,000 doubled = $100,000
2. $100,000 doubled = $200,000
3. $200,000 doubled = $400,000

This example is based on the original amount invested of $50,000, without any further contributions made by you. And if you’ve already worked out the time-frame, you would be correct in that it would take approx. 43yrs for you to turn $50,000 into $400,000 if you did nothing else and consistently achieved an 8% return on your investment.

Better, but still not very exciting (especially if you start investing later in life).

That’s a really, really…. long time to wait to get $400k I hear you say! Yes I agree.

This is why getting the best possible rate of return you can (without too much risk) makes a huge difference. In addition, you will want to regularly contribute as much as you can to speed up the process. The more you can contribute the quicker you will reach your goal as the compounding effect is working for you.

Most people who are saving to buy a house or building an investment portfolio will typically contribute to build their lump sum on a regular basis to accelerate the growth.

If you’re planning to buy a property with your lump sum then once you’ve bought the property you will have the market and capital growth doing the heavy lifting for you. This is why it’s so important to get started so you can duplicate and start doubling your money in shorter timeframes.

How does the Rule of 72 work against us?

The rule doesn’t just apply to appreciating assets. The Rule of 72 can be used to find out how inflation will impact your savings or investments. In other words how long it will take for your savings to lose half their value.

Let’s take the most recent official inflation rate of 4.1% (Dec 2023). Dividing 72 by the inflation rate tells you how long it will take for your money to lose half of its purchasing power.

The Rule applied: 72/4.1 = 17.5

It will take seventeen years for your money to loose half of its purchasing power.

This is one of the reasons why being aware of the inflation figure is important to your overall financial strategy.

What about Debt?

You guessed it - the other side of the equation is the Rule of 72 also works for debt. This is a sobering look at the impact of high interest debt, particularly credit card debt.

Let’s assume a credit card balance of $15,000 at an interest rate of 20%.

The Rule applied: 72/20 = 3.6 years.

If you don’t pay down the balance, the debt will double to $30,000 in approx. 3.6 years (ouch)!

You might be thinking what’s the point of saving then? and you would be right to ask that question… we discuss this topic in more detail in our recent article ‘Savings - What’s the Point?’ Its well worth a read to get a full understanding of the effects of inflation and purchasing power and how this helps or hinders your savings and investments.

How to Double your Money?

First you will need to have some money to put to work.

1. Seek out the best possible rate of return you can is one of the ways. If you’re just starting out this could be a high-interest rate savings account. Regularly contribute to it to accelerate the growth. You may then go on to a more active investing strategy once your balance has built up.
2. If you’re further along you might start to seek out other investments which have a higher return and duplicate as and when you can such as building a share or property portfolio.
3. You may be running a business which could see returns such as 30% a year. This would see you doubling your money in just 2.5 years.

In order to get ahead your money needs to be working for you in assets that out-perform inflation or you are going backwards as we have discussed here and in our article on ‘Savings - What’s the point’.

There are many paths to doubling your money and reaching financial freedom whatever that looks like for you. Time and Money will be your best allies.

What if I'm starting with $0?

If you are just starting out on your finance journey with not much or even $ zero in savings, we can help turn that around. It might be easier than you think with a few tweaks and some new boundaries put in place.

We have an entire course geared towards setting you up for success called the Empowerment Program. The program teaches the fundamentals of personal finance with practical lesson and achievable actions to implement to set you up on your path towards a successful financial future.

It’s not as hard as you may think to get started. In the world of money and investing, the best time to start was yesterday… but don’t be disheartened it’s never too late!

Just Get Started!

Book in for a call with me let's set you on the path to get your money working for you, instead of you just working for it!

You have nothing to lose and compound interest to gain!

Don’t put off until tomorrow what you can do today. The opportunity may just pass you by. A missed opportunity may cost you $ Millions!!

Warm wishes,

Personal Finance Coach - Empowering you to be in control

*The Rule of 72 is approximate.

For rates of return that range from 6% to 10%, 72 is the optimal number to use. If you’re looking at potential returns of less than 8%, a good rule of thumb is to subtract 1 from 72 for every 3 points lower than 8%. Therefore, at a rate of return of 5%, the Rule of 72 becomes the Rule of 71. At rates higher than 8%, add 1 for every 3 percentage points. With a projected rate of return of 11%, you use the Rule of 73.

Disclaimer: this content does not constitute advice and should not be relied upon as such. Cashflow Mastery is for educational purposes only. It is not to be taken as Financial, Taxation, or Legal advice. Full terms are found on our website.