What Is The Rule Of 72?
If you understand how compound interest works, you know that earning 10% per year will double your money in less than 10 years, but how long will it take? With some math, you can determine that it takes 7.27 years. That’s cool, but you’re in a hurry, and you don’t have time to be running all sorts of numbers. All you want to know is, how quickly will I double my money? The good news is there is a simple method to roughly determine this. It’s called the Rule of 72, and all you need to do is take the number 72 and divide it by the interest rate that you expect to receive. In the example above if we assume that the stock market is going to return 10%, it will take roughly 7.2 years for us to double our money.
The Rule of 72 can be applied numbers of all sizes, and it will always provide you with a quick and reasonably accurate answer. However, it is important to remember times that these values are rough. They will also stray further from the truth with extreme interest rate inputs. For example, if you ask how long it takes to double your money with an interest rate of 1%, the Rule of 72 would say 72 years. The actual answer is 69.66 years. Similarly, if you asked how long would it take to double my investment with an interest rate of 72% per year. The Rule of 72 would say 1 year, but it would actually take 1.28 years.
Inflation: Why The Cost Of Living Increases
Inflation measures the change in the cost of living each year. It is generally measured consumer price index (CPI) however there are other methods.
Sunk Cost Fallacy: Stop Worrying About Spent Money
The sunk cost fallacy is a behavioural flaw that causes people to make decisions based on past spending that is not relevant to the current decision.
Compound Interest: How To Get Rich Slowly
Compound interest refers to interest on your initial investment as well as interest on your interest. Einstein calls it the 8th wonder of the world, and it will play a critical role on the road to achieving your financial dreams.
The Time Value of money: What Is A Dollar Worth Today?
The concept of the time value of money comes from the notion that a rational investor would rather have a dollar now than in the future. Any dollar collected now could be invested, and the value would be that dollar plus any amount that could be added to it by investing until the future period
Limit Down: When Stocks Need a Circuit Breaker
Limit downs are the maximum allowable drop in an asset or market for one day. Stocks can also a trigger limit up if they rise too quickly; however, a market can only trigger a limit down.
Credit Score: How Trustworthy Are You?
What is a credit score? Banks use it to determine if you are eligible for a credit card or loan as well as what rate they will offer and a landlord may use it to determine if you should be allowed to rent their house.