Saving and the Rule of 72

Saving and the Rule of 72

The Rule of 72 says that to find the number of years required to double your money at a given interest rate, you just divide the interest rate into 72.  For example:  If you want to know how long it will take to double your money at 8%, divide 8 into 72 and you get 9 years.

You can also run this example backwards.  If you want to double your money in 6 years, just divide 6 into 72 and you will discover that you need an interest rate of 12%.  Now that rate can be hard to find.  But adding to your savings will pay off in the long run – the Rule of 72 doesn’t lie!

Let’s look at the idea of saving for your child’s college education.  If you save $75.00 per month from birth to age 10 at 5% interest, at the end of 10 years you will have saved $9,000 plus $2,646.17 in interest for a total of $11,646.17.  If you didn’t want to add anything additional to that savings account but wanted to double your balance by the time your child turned 18, then you would need to place your savings in an account that would yield 9%.

We talk about having a Spending Plan and part of that Plan is regular monthly saving.  If you save $25.00 per month at 5% interest, you can expect that at the end of 10 years, you will have saved $3,000.00 plus $882.06 in interest.  The interest is equal to 35 extra deposits!

If you were to save $100.00 per month at 5% interest, at the end of 10 years, you can expect to have saved $12,000.000 plus $3,528.23 in interest.  The interest is equal to 35 extra deposits!  That is the power of the act of saving regularly.   Start yours today!

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