The Rule of 72: How Fast Will Your Money Double?
Albert Einstein called compound interest the “eighth wonder of the world.” There is a simple mental math trick to calculate exactly when your investment will double—without using a calculator.
The Power of Compound Interest
“When will my $10,000 become $20,000?” The answer depends entirely on your Rate of Return (RoR).
| Interest Rate | Calculation | Years to Double |
|---|---|---|
| 1% (Savings) | 72 ÷ 1 | 72 Years |
| 4% (Bonds) | 72 ÷ 4 | 18 Years |
| 7% (Balanced) | 72 ÷ 7 | 10.3 Years |
| 10% (S&P 500) | 72 ÷ 10 | 7.2 Years |
| Asset | Goal |
|---|---|
| Investments | High Rate |
| Debt | Low Rate |
The Rule Works Against You Too
The math doesn’t care if you are earning money or owing money.
1. Credit Card Debt (24% APR)
72 ÷ 24 = 3 Years.
If you don’t make payments, your debt will double in just 3 years. This is why high-interest debt destroys lives.
2. Inflation (3.5% Avg)
72 ÷ 3.5 = ~20 Years.
This means the cash under your mattress will lose half its value in 20 years. $100 today will only buy $50 worth of groceries in 2046.
How to Use This Today
Use the Rule of 72 to set realistic goals.
- Scenario: You are 30 years old. You have $50,000. You want it to be $100,000 by age 40 (10 years).
- Math: 72 ÷ 10 Years = 7.2%.
- Action: You need an investment that returns at least 7.2%. A savings account won’t do it. You need a diversified stock portfolio.
Pro Tip: The “Real” Rule of 72
Formula: 72 ÷ (Return – Inflation)
Example: 10% Return – 3% Inflation = 7%. (72 ÷ 7 = 10.2 Years to double real wealth).