Rule of 72
To determine the doubling rate of compound interest the rule of 72 is helpful.
The rule of 72 simply states that the time it takes to double the principle by compound interest may be approximated by dividing the yearly interest rate into 72.
This will give a ballpark number to use in comparisons. For example, earning 7% annually will take about 10 years to double (72/7=10.29)
while earning 10% annually will take about 7 years to double (72/10=7.2)
Taking this principle one step farther, imagine what would happen if the time period was reduced to one month instead of one year.
What if the month was reduced to a week? You can see that it would quickly create a doubling effect that will build huge wealth rapidly.
See the following table for an idea of just how fast the compounding effect can benefit you.
Time Cycle |
... | 2 | 4 | 6 | 8 | 10 | 12 | 14 | 16 |
0 | 3500 | 3500 | 3500 | 3500 | 3500 | 3500 | 3500 | 3500 |
1 | 3570 | 3640 | 3710 | 3780 | 3850 | 3920 | 3990 | 4060 |
2 | 3641 | 3785 | 3932 | 4082 | 4235 | 4390 | 4548 | 4709 |
3 | 3713 | 3936 | 4167 | 4408 | 4658 | 4916 | 5184 | 5462 |
4 | 3786 | 4093 | 4417 | 4760 | 5123 | 5505 | 5909 | 6335 |
5 | 3862 | 4256 | 4682 | 5140 | 5635 | 6165 | 6736 | 7348 |
6 | 3939 | 4426 | 4962 | 5551 | 6198 | 6904 | 7679 | 8523 |
7 | 4017 | 4603 | 5259 | 5995 | 6817 | 7732 | 8754 | 9886 |
8 | 4097 | 4787 | 5574 | 6474 | 7498 | 8659 | 9979 | 11467 |
9 | 4178 | 4978 | 5908 | 6991 | 8247 | 9698 | 11376 | 13301 |
10 | 4261 | 5177 | 6262 | 7550 | 9071 | 10861 | 12968 | 15429 |
11 | 4346 | 5384 | 6637 | 8154 | 9978 | 12164 | 14783 | 17897 |
12 | 4432 | 5599 | 7035 | 8806 | 10975 | 13623 | 16852 | 20760 |