The compound interest rule of 72 was discovered by Albert Einstein. Referring to compound interest, Albert Einstein is quoted as saying: "It is the greatest mathematical discovery of all time."
Albert Einstein (1879 - 1955) called the compound interest rule of 72 the 8th Wonder of the World - It can work for you, or against you. When you invest it works for you. When you borrow it works against you!
Check out our compound interest calculator.
Step 1 of 2: How long does it take my investment capital to double?
This step teaches you how to determine the number of years it will take for your investment or debt to double in value.
Divide the number 72 by the percentage rate you are paying on your debt, or earning on your investment. Here are two examples...
You borrowed $1,000 from your friend, who is charging you 6% interest. 72 divided by 6 is 12. That makes 12 the number of years it would take for your debt to your friend to double to $2,000 if you did not make any payments.
You have a savings account with $500 deposited in it. It earns 4% interest from the bank. 72 divided by 4 is 18. It will take 18 years for your $500 to double to $1,000 if you don't make any deposits.
Remember: 72 divided by the interest percentage is the number of years it takes to double.
That is the end of step one. Step two will blow your socks off! We ask that you tell two friends about this web site due to the value of the information we are giving you.
Step 2 of 2: How many times will my investment money double?
This step teaches you how important it is for your money to double as many times as possible, and for your debts to double as few times as possible.
Determine how many years you will keep your investment before cashing it in. Divide that by the number of years it will take to double each time, the number you figured out in step one.
Now look at what happens to your money each time it doubles...
$1 ... $2 ... $4 ... $8 ... $16 ... $32 ... $64 ... $128 ...
You can see that it makes a big difference how many times your money doubles. If you can make it double only a few more times by making just slightly better investments, you can end up with many times more money at retirement, or whenever you cash in your investment.
Think about how fast your debts can double with high interest rates, such as those charged on most credit card accounts.
You have learned the basics in order to take advantage of Albert Einstein and the rule of 72.
Win The Money Game!
Leverage old money you are already spending to create new money you can invest. By lowering your mortgage payment you free up cash, which you can then invest. Your goal is to have compound interest work for you and not against you.
"I am enough of an artist to draw freely upon my
imagination. Imagination is more important than knowledge.
Knowledge is limited. Imagination encircles the world."
-Albert Einstein
Person of the Century:
Albert Einstein
He was the pre-eminent scientist in a century dominated by
science. The touchstones of the era — the Bomb, the Big
Bang, quantum physics and electronics — all bear his
imprint
By FREDERIC GOLDEN
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