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Be a Millionaire, the Smarter Way
Albert Einstein's popular 'Rule of 72'
What has the 'Rule of 72' to do with investing and growing your money ?
Basically, the 'Rule of 72' is the basic building block of financial learning which help to determine the followings:-
1) What interest rate should you avail at in order to double your money quickly?
2) How many years does it take for your money to double?
3) How many years does inflation take to erode purchasing dollars value today?
The formula:
72 divided by interest rate of return = No. of years it takes for money invested to double, i.e.
If you put $100,000.00 in a bank account, and it will take 72 years for the money to become $200,000.00 when the bank only offers a 1 % interest rate. (72/1 = 72).
If you put $100,000.00 in a time deposit account at 4% interest rate, it will take 18 years in order for the money to become $200,000.00 (72/4 = 18).
Theoretically, the higher the interest rate, the less number of years the money will it takes to double. So if you put $100,000.00 in an instrument that would give a 12% interest rate it will only take 6 years for the money to double (72/12 = 6).
The reality is 'Rule of 72' is more accurate with a lower interest rate as a higher interest rate will give rises its inaccuracy. (An example of this is that if you have $100.00 in an investment instrument at 72% interest rate per year accordingly, your money will become $200.00 in 1 year (72/72 = 1). However, this is not accurate as you will need a 100% interest rate in order for it to become $200.00 in 1 year time.
Again, how many years would it take for your money to TRIPLE and what should the interest rate be that you should avail? You should use the 'Rule of 115'. It works basically the same way as the 'Rule of 72', just substitute 72 with 115.
Earning the minimum wage? No problem, with the 'Rule of 72', you could be a millionaire! Save, invest, compound by shortening the years vested.
Adapted from an article by Zigfred Diaz.
50 Weeks
GETTING STARTED
"If you procrastinate when faced with a big difficult problem... break the problem into parts, and handle one part at a time." - Robert Collier
"If you wish to reach the highest, begin at the lowest." - Publilius Syrus
"If you go as far as you can see, you will then see enough to go even farther." - John Wooden
"To climb steep hills requires slow pace at first." - William Shakespeare
What has the 'Rule of 72' to do with investing and growing your money ?
Basically, the 'Rule of 72' is the basic building block of financial learning which help to determine the followings:-
1) What interest rate should you avail at in order to double your money quickly?
2) How many years does it take for your money to double?
3) How many years does inflation take to erode purchasing dollars value today?
The formula:
72 divided by interest rate of return = No. of years it takes for money invested to double, i.e.
If you put $100,000.00 in a bank account, and it will take 72 years for the money to become $200,000.00 when the bank only offers a 1 % interest rate. (72/1 = 72).
If you put $100,000.00 in a time deposit account at 4% interest rate, it will take 18 years in order for the money to become $200,000.00 (72/4 = 18).
Theoretically, the higher the interest rate, the less number of years the money will it takes to double. So if you put $100,000.00 in an instrument that would give a 12% interest rate it will only take 6 years for the money to double (72/12 = 6).
The reality is 'Rule of 72' is more accurate with a lower interest rate as a higher interest rate will give rises its inaccuracy. (An example of this is that if you have $100.00 in an investment instrument at 72% interest rate per year accordingly, your money will become $200.00 in 1 year (72/72 = 1). However, this is not accurate as you will need a 100% interest rate in order for it to become $200.00 in 1 year time.
Again, how many years would it take for your money to TRIPLE and what should the interest rate be that you should avail? You should use the 'Rule of 115'. It works basically the same way as the 'Rule of 72', just substitute 72 with 115.
Earning the minimum wage? No problem, with the 'Rule of 72', you could be a millionaire! Save, invest, compound by shortening the years vested.
Adapted from an article by Zigfred Diaz.
50 Weeks
GETTING STARTED
"If you procrastinate when faced with a big difficult problem... break the problem into parts, and handle one part at a time." - Robert Collier
"If you wish to reach the highest, begin at the lowest." - Publilius Syrus
"If you go as far as you can see, you will then see enough to go even farther." - John Wooden
"To climb steep hills requires slow pace at first." - William Shakespeare
Labels: Millionaire
posted by eyebuzz at 9:30 AM
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