31st October is celebrated as World Savings Day but what a coincidence Halloween is also celebrated on the same day. (tragedy is we know about Halloween but….) Let’s learn some basic rules that you can practically apply in your day-to-day life.
The ‘Rule of 72’ is a simple way to determine how long an investment will take to double, given a fixed annual rate of interest. By dividing 72 by the annual rate of return, investors can get a rough estimate of how many years it will take for the initial investment to double itself.
For example, the rule of 72 states that Rs 1 invested at 10% would take 7.2 years (72/10 = 7.2) to turn into Rs 2. In reality, a 10% investment will take 7.3 years to double (1.10^7.3 = 2). When dealing with low rates of return, the Rule of 72 is fairly accurate. Albert Einstein said compounding is eighth wonder of this world & “rule of 72” eight wonder. Below chart compares the number of years it takes an investment to double at certain rate.
Investment Guru – why you should avoid them?
Every Penny Counts
Let’s try to practically apply this rule. Let’s assume that as today is World Savings Day – you added Rs 1000 to your retirement kitty. (assuming you are 29)
WOW! So if someone save Rs 1000 today for his retirement – it will become Rs 32000 in 30 years or Rs 64000 in 36 years.(@ 12%) Just imagine if this amount is Rs 10000 this month (if you don’t splurge in the festive season) or Rs 1 Lakh this year (bought a small car or vacation or may be combination of many small things).
There is also a reverse usage of rule of 72 – where you divide 72 by number of years & you will get the rate at which money will double in this period. Similarly there are 114 (triple) or 144 (quadruple).
Super Mario Rules
Question: India’s annual population growth rate is 1.3% (China’s .5%) –
how many year it will take us to cross 200 Crore. 🙂