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Friday, June 28, 2013

Double Your Money - The Rule of 72




I don’t know about you but I like things explained to me in simple terms.
Do you know what I mean?
I like things explained to me in terms that are easy to understand.
Do you ever feel when someone is explaining something to you that they are talking to you in a foreign language.
Do you ever want to respond with “so basically what you are saying is..…”
Because I do (actually I really do!!).
Do you ever feel that financial strategies seem difficult to understand?
Have you ever thought to yourself, if things were easier to understand, maybe my investments would be making more money for me!
Well let me explain the rule of 72 to you and I will keep it simple.
To figure out the rule of 72 you take the number 72 and divide it by the annual rate of interest that your money is earning to determine how many years it is going to take for your money to double.
In other words if you are getting a 1% rate of return a year.  It is going to take you 72 years to double your money. 
So to a 30 year old who is thinking of investing $10,000 in a bank CD with a 1% rate of return, they will be 105 years old by the time their money has doubled and they have $20,000.
If we take that same person but this time they were to put their $10,000 into an investment that they were going to get a 4% rate of return on their money  now their money will double every 18 years, so by the time they reach the age of 65 they will have $40,000. 
Starting to look better isn’t it?
Well, how would it look if again we took that same person and we were able to get them  an 8% rate of return on that same $10,000, this would then double their investment every 9 years so by the time they reached 65 they would have $160,000.  Now that is a much better investment.  I am sure you will agree.
So I think you will see that it is vitally important to learn the basics in order for you to reach your financial goals, in other words you need to have your money invested wisley in order for it to do the best job for you and help you achieve that financial independence that we are all looking for in our retirement years.


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