Rule of 72
Divide 72 by an annual return rate to estimate how many years money takes to double. Useful for fast mental math.
The Rule of 72 is a back-of-the-envelope formula: 72 ÷ annual return rate = years to double. At 6% annual returns, money doubles every 12 years. At 9%, every 8 years. At 12%, every 6 years. It's mathematically approximate — the real formula uses logarithms — but it's accurate enough for rough planning and easy to do in your head.
Worked examples:
- $10,000 at 7% takes ~10.3 years to become $20,000
- That $20,000 takes ~10.3 more years to become $40,000
- And ~10.3 more to become $80,000
Three doublings, ~30 years, an eightfold increase. The Rule of 72 is the cleanest way to feel compound interest intuitively without doing the full exponential math.
It also works in reverse for inflation: divide 72 by the inflation rate to see how long until your money's purchasing power halves. At 3% inflation, the dollar in your pocket halves in value every ~24 years.
For higher rates (above ~15%), the Rule of 72 starts to over-estimate. For lower rates (under 4%), it slightly under-estimates. For everyday personal-finance ranges, it's close enough.
See also
- Compound interest — Interest earned not just on your original deposit, but on the interest that's already been added to it. The engine of long-term wealth.
- Yield — The income an investment produces, expressed as a percentage of its price. Different from total return — yield is just the income part.
- APY (Annual Percentage Yield) — The yearly return on a savings or investment account, including the effect of compounding interest.
Ask Cashowa about rule of 72
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