I’m currently writing my 9th book. This one is all about ‘INVESTING’ – so exciting! In the book, I have identified some personal finance golden rules of investing. Two of those rules are the focus of this post. Today, I will talk about the Rule of 72 and the Rule of 115.
Rule of 72: This rule is a formula that tells you how long it will take for your money to double, given a fixed rate of return. The formula is simple: 72 divided by interest rate equals years to double. For example, if your account earns:
- 12% interest rate, it will take 6 years for your money to double (72 / 12 = 6)
- 3% interest rate, it will take 24 years for your money to double (72 / 3 = 24)
- 1% interest rate, it will take 72 years for your money to double (72 / 1 = 72)
Rule of 115: The Rule of 115 is used to figure out how long it will take for an investment to triple in value. It follows the same process as the Rule of 72. Here, you divide your interest rate by 115. For example, if your account earns:
- 10% interest rate, it will take 11.5 years for your money to triple (115/10 = 11.5)
- 5% interest rate, it will take 23 years for your money to triple (115 / 5 = 23)
- 1% interest rate, it will take 115 years for your money to triple (115 / 1 = 115)
It’s important to note that the “Rule of 72” and “Rule of 115” are simply useful guides and not iron-clad laws. The rules assume that your money compounds annually, meaning that once a year your interest gets added to your principal and the entire amount is reinvested. The more interest your money earns, the more your money will work for you.
If you understand and apply these two rules to your personal finance, you’re less likely to settle for opportunities that don’t give you an advantage. You're also less likely to take on debt that might take forever to pay off. Both rules work because they are simple manipulation of the compound interest formula. They are also practical eye-opener that will force you to ask shrewd questions before making important money decisions.
The power of compound interest is just amazing. “He who understands it earns it … he who doesn't … pays it.” ― Albert Einstein.
About Nike
Oyenike Adetoye (aka Nike) is an impactful speaker, author and personal finance expert. A Chartered Management Accountant by profession. Nike is the founder and CEO of LifTED Finance, a private financial firm that educates, coaches and supports people on their journey through financial fitness and wealth management.