Grow Your Investments – Know the Rule of 72

Ever wanted to know what the mechanics of mathematics have to do with your investment growing over time?  If not, you should because this provides a valuable insight into how something small can grow into something big with a little effort.

Albert Einstein is credited with discovering the mathematical formula that makes up this principle.  In fact he said “it is the greatest mathematical discover of all time.”

The rule of 72 looks at how much time it will take, given the interest rate, to double your money with an investment.  The way to see how this works is to take your interest rate and divide by 72 in order to arrive at the number of years it takes to double your money.

For example, if your interest rate is 1%, then you divide 72 by 1, which equals – wait for it – 72.  So if you had $1,000, then it would take 72 years to get to $2,000 based on 1% interest.

Currently the going rate for an ING Direct Orange savings account is 1.5%.  If you had $10,000 to invest and you wanted to double that money, it would take you 48 years.  But, if you found a different bank that paid a higher rate it would take you less time.

The point here is that you can use this equation and other variations on it to help determine the growth of your money over time.  This should be used as an encouragement to you to begin saving and investing right now.  Or, you might be inclined to move your balance from a low yielding account (like a checking account with interest) to a higher yielding account which will give you a better return on your investment.

Also, be aware of those institutions that try to capture your attention with outlandish interest rate claims on deposits left with them.  They are not reputable and can leave you vulnerable to losing your money very quickly.

Learning to use this will help you begin to understand the power of compounding interest.  You should take action to make your money work for you, not the other way around.