Rule 72, unlike rule 34 in every way

You’ll have to forgive the meme reference of ‘Rule 34’, because ‘Rule 72’ is a financial mathematics tool that helps you decide how long it will take for a sum to double at a certain rate of return.

How does it work? Easy, you just take the number 72 and divide it by the interest rate, so if you had a sum of €10,000 and were getting a 4% return, how long would it take for you to double your money?

Workings: 72/4 = 18 so it should take 18 years to turn €10,000 into €20,000. We can test this using financial maths by inserting €10,000 into the formula of 10,000*(1+r)^x which will take our principal and gross it up by the compounded series at 4%.

€10,000 x (1+0.04)^18 = 10,000 x 2.02581 = €20,258

So while it isn’t as precise as the known formula calculation, it’s very close given that we are discussing a term of 18 years. You can use the rule of 72 for any interest rate and it will get you a fairly close answer, although the calculus version is the actual answer.

It’s just a handy tool to have in your bag of tricks!

Leave a Comment

Awesome! You've decided to leave a comment. Please keep in mind that comments are moderated.