Many of us make investments. If the interest on an investment is compounded, the Rule of 72 is a good, easy way to estimate the number of years an investment would take to double at a particular interest rate.
The formula is simple: Number of years for investment to double = 72/Rate of return.
By dividing 72 by the annual rate of return, investors can get a rough estimate of how many years it will take for the initial investment to double. For example, if you invested Rs.1, 000 at 10% compounded, it would take 7.2 years to turn into Rs.2, 000. The rule is a pretty good approximation.
Apart from its use in personal finance and other financial areas, the Rule of 72 can be used in other areas as well:
If India’s GDP grows at 8% a year, the economy will double in 72/8 or 9 years.
If India’s population grows at 3% a year, it will double in 72/3 or 24 years.
This simple rule will allow you to take faster, more considered decisions on your personal finance investments. And in other areas as well.