The Rule of 72 is a quick, useful formula that is popularly used to estimate the number of years required to double the invested money at a given annual rate of return.
While calculators and spreadsheet programs like excel sheets have inbuilt functions to accurately calculate the precise time required to double the invested money, the Rule of 72 comes in handy for mental calculations to quickly gauge an approximate value. Alternatively, it can compute the annual rate of compounded return from an investment given how many years it will take to double the investment.
The Formula for the Rule of 72 Is
Rule of 72= 72 / interest rate = number of years to double investment
How to Calculate the Rule of 72
If an investment scheme promises an 8% annual compounded rate of return, it will take approximately (72 / 8) = 9 years to double the invested money.
This rule can be also use to work out when a loan will cost you double that amount you have taken as loan. For example, if take car loan it cost 12%. Using this rule 72 / 12= 6. Your debt will double in six years.
