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When Would You Need to Use the Rule of 72? How to Use It & Count Down Your Money By the Rule of 72?

Mar.10.2021
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The Rule of 72 is a significant instrument that you can use to count down the period in years it would need to double an amount of money through interest payments (interest rate). But is this all that you need to know about it? Continue reading to read more about why is it used, how to estimate the sum of cash using the Rule of 72, and a lot of other stuff to do

What is Rule of 72: Explained In Few Words

theory of 72

The meaning of this rule is about the interest rate multiplied by the period required to increase the amount of money twice is nearly equal to 72.

72 ÷ your number yearly interest rate = how many years till your venture x2

The theory of 72 can easily explain how fast your money will grow x2 at a provided return rate.

Rule of 72 Equation: When and Where You Can Apply it

You can choose the rule in the following cases:

  • To ascertain the number of years that will have to pass to take to double a sum of investments over interest payments;
  • To determine the yearly interest rate required to multiply a sum of money in a timeline;
  • To use during calculating numbers during exponential “fall’ in case of inflation or exponential growth.

Origins of 72 Rule Formula

You probably may guess that in question what has appeared earlier, interest or rule of 72, the first one wins with the not equal fight of timelines. It dates back to ancient civilizations like Greek, Mesopotamian, and Roman. Interest is even mentioned in the Quran. The first usage of the method was applied in math, agriculture, and prototypes of money and land loans.

Originally, the first person who mentioned what’s the rule of 72 is Italian scientist Luca Pacioli. The original reference to the rule is in his book published in 1494 called “Summary of Arithmetic, Geometry, Proportions, and Proportionality”. We may say that Luca is the inventor of the method. Some researchers mention the world-popular scientist of all ages, Albert Einstein, as the spiritual creator of the rule but such opinion is subjective and controversial.

The Rule of 72 Examples

what’s the rule of 72

What Stuff You Should Keep In Mind?

To remain the efficiency of this rule, the most reliable outcomes have occurred at an 8% annual interest rate. Still, nobody will stop you or say that you make a mistake if you choose another %. Moreover, the percentage from 4% to 15% is quite reliable.

How to Calculate the Rule of 72?

To represent you how it works with different percentage we are giving you the next table:

Rule of 72ActionAnnual Interest RateEquallyInvestment Doubles In Years
72÷5%=14.4 years
72÷8%=9 years
72÷15%=18 years

You may also apply Rule of 72 to find the annual interest rate if you have discovered how many years you gonna need to double your sum of mone:

Rule of 72ActionInvestment Doubles In YearsEquallyAnnual Interest Rate
72÷14.4 years=5%
72÷9 years=8%
72÷18 years=15%

How to Use the Rule of 72: Varieties of Rule of 72

You won’t be arguing that the Rule of 72 allows a phenomenal level of simplicity, right? An almost perfect formula from which you always have a correct answer. But some people can’t live without achieving perfection. For instance, someone likes to apply straightforward math.

The ideal percentage is 8% but if you are using 6% or 11%, will it be appropriate to use number 72 or it is better to look for other alternatives. For each 3 points higher or lower than 8% you may adjust 72 to +1/-1 number:

  • 11% – use number 73;
  • 14% – apply 74;
  • 5% – apply 71.

Thank You For Reading!

I hope now you will how to use the rule of 72. It is a perfect way to count down the timeline in years it would need to double an amount of money through the interest rate. Don’t forget to read some other articles that help you to make your life easier and better. Stay safe and wash your hands. Don’t forget to turn on notification to see our newest article.

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