The ‘Rule of 72’ is an easy way to calculate the period of time it would take to double your money.
The big advantage of the ‘Rule of 72’ is its simplicity. The calculation can be done mentally or using a simple calculator.
Otherwise, to calculate compound interest, it would take either Microsoft Excel or a more advanced calculator.
A quick example to understand ‘Rule of 72’.
Let’s say you open a fixed deposit (FD) of ₹ 10,000 at 7% rate of interest.
How many years would it take for your money to double?
To get the approximate figure, you divide 72 with the interest rate.
72 divided by 7 = 10.3
It would take approximately 10 years for ₹ 10,000 to become ₹ 20,000 at 7% rate of interest.
Similarly, if you deposit the same amount of money at 6% interest.
72 divided 6 = 12
It would take 12 years to double your money.
Rule of 72 Formula
The Rule of 72 formula is simple and easy to calculate.
72 / Interest Rate = Number of Years to double
Rules of 72 Examples
The Rule of 72 can be used in several different ways.
Suppose the price of Tomato is ₹ 30 per kg. On an average, the price has been increasing by 10% every year. In how many years would the price of Tomato double?
72 / 10 = 7.2 years.
In approximately 7 years the price of Tomatoes would be ₹ 60 per kg.
If your house rent is ₹ 25,000 per month. Your owner has been increasing the rent 15% every year.
72/15 = 4.8 years.
In approximately 5 years, you would be paying ₹ 50,000 per month as rent.
Your mutual fund has been giving returns of ₹ 12% per year. How long would an investment of ₹ 1 lakh take to double?
72 / 12 = 6 years.
If you invested lump-sum in a mutual fund, it should ideally double in 6 years.
There are several ways to invest your money. You can keep it in Savings Bank, which gives around 3.5%. FD which gives around 6%. There are other options like Public Provident Fund (PPF), Equity Mutual Fund and Direct Stock Market investment.
|Type||Interest||Rule of 72||Years to Double|
|Savings Bank||3.5||72 / 3.5||20.5 years|
|Fixed Despoit||6||72 / 6||12 years|
|PPF||8||72 / 8||9 years|
|Mutual Fund||12||72 / 12||6 years|
|Direct Stocks||18||72 / 18||4 years|
As you can see from the table above. If you become a good investor or trader, 18% returns in the long-term should not be difficult.
If you have 10 lakhs in the year 2020 and you keep that money in a Savings Bank amount – only in 2040 would your money double to 20 lakhs.
If the same amount was invested in Fixed Deposit, you would have 20 lakhs in 2032.
PPF investment would double your money by 2029.
Mutual Funds would probably give you 20 lakhs by 2026.
If you do well in the stock market through direct equity, you could turn 10 lakhs into 20 lakhs by 2024.
That’s the power of compounding. You save many years!
Another example of ‘Rule of 72’.
When will my Salary double?
If you earn ₹ 50,000 per month. Your company has been increasing your salary by 10% every year. How many years would it take for you to earn 1 lakh?
Easy – 72/10 = 7.2 years. If you earn 50k now, your salary would be 1 lakh in 2027.
The ‘Rule of 72’ of can be used in several different ways. Try using it in your daily life.