If you put your money in the right places, it can grow significantly over timethe effect of compound interest. It can even double while you don't have to do anything.
Do you want to know how fast your money can grow? The 'Rule of 72' estimates how many years it will take for your money to double, given a fixed rate of return.
“Think about your savings for the future,” write Tom Mathews and Steve Siebold in their book'This is how money works'which highlights the “Rule of 72” as one of three essential personal finance topics to understand (the other two are compound interest and the time value of money). “The Rule of 72 can give you an idea of how many doubles you'll get in your lifetime. With more time, a lower interest rate may give you enough to reach your goals. With less time, you may need a higher interest rate.”
The formula is simple:72/interest = years to double
Try entering different interest rates on the different accounts your money is in, from savings and money market accounts to indexes and mutual funds. If your account e.g. portion:
1%, it will take72 yearsto double your money (72/1 = 72)
3%, it will take24 yearsto double your money (72 / 3 = 24)
6%, it will take12 yearsto double your money (72/6 = 12)
9%, it will take8 yearsto double your money (72/9 = 8)
12%, it will take6 yearsto double your money (72 / 12 = 6)
If your money is in a standard savings account, you will only earn 0.09% (the average interest rate for savings accounts nationally), would last800 yearsdouble.
If you have extra savings, it's probably better to keep it in one piggy banksavings account with high returnsofdeposito'sbevis, both of which yield significantly higher interest rates,up to 2.69%.
like youinvest your money in the stock marketWhether it's through an employer-sponsored 401(k) plan, a traditional or Roth IRA, an individual investment account, or elsewhere, you're likely to earn even greater returns. Thataverage annual total return for the S&P 500index over the past 90 years is 9.8%. Adjusted for inflation it still comes to oneannual return of approximately 7% to 8%. If you earn 7%, your money will double in just over 10 years.
You can also use the Rule of 72 to add up interest on credit card debt, a car loan, mortgage, or student loan to find out how many years it will take for your money to double on another.
For example,the average interest rate for credit cardsamounts to 17.3 percent. If you divide 72 by that percentage, you get 4.16 years. That's all it takes for a credit card company to double your money. The higher the interest rate, the more you owe your lenders.
If you are in debt, consider refinancing your car loan or mortgage to get a lower interest rate.
“Rule of 72” is “a practical eye-opener that forces you to ask smart questions before making important money decisions,” write Mathews and Siebold. If you understand it and apply it to your personal finances, "you'll be less likely to fall for gimmicky promotions from banks, settle for options that don't give you an edge, and take on debt that can take forever to pay off."
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