Rule of 72
When you earn interest on your savings, that interest is added to your principal and also earns interest on itself. So, your balance doesn’t merely grow, it grows at an ever-increasing rate as it compounds monthly.
- If you saved $250 a month for 35 years at a 4% interest rate, your investment would grow to more than $229,000.
- With an 8% annual rate of return on the same $250 for the same 35 years, you now would have earned MORE THAN DOUBLE at $577,000.
- And if you can earn 12% per year on your $250 per month investment, it would grow to more than$1.2 MILLION in 35 years.
Monthly investments not your style? Say you have a lump sum to invest. Let’s see how long it would take to double the initial investment amount.
To apply The Rule of 72, simply divide the number 72 by the interest rate. The result is the approximate number of years it will take to double your money. For example, at a 4% interest rate, your money will double every 18 years because 72 ÷ 4 = 18. So, if you invest $10,000 at a 4% interest rate, you’ll be 47 years old (29 + 18) when your money doubles to $20,000, and at 65 (47 + 18) you’ll have $40,000.
Not too exciting? Well, hold on a minute.
Now let’s say you’re earning 8% instead of 4%? The same $10,000 investment would reach $160,000 at age 65, since it would double every 9 years. You have now doubled your interest rate but quadrupled your investment!
Now, say WE Alliance helped you achieve a 12% interest rate. That same $10,000 you started with back when you were 29 would double every 6 years to provide a whopping $640,000 at age 65.
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