Besides, it’s a fantastic reminder of how powerful a single percentage point can be.The difference between 6 percent and 7 percent doesn’t sound like much.But the difference between doubling your money in 12 years versus doubling your money in 10.3 years sounds a lot more significant.
Some of the most important math skills I need, it turns out, are the basic ones I learned in fourth grade.
Simple double-digit multiplication and division can help me TRIPLE my money.
There are two handy rules of thumb that I use when I’m calculating how well an investment will pay off.
One is called the “Rule of 72.” The other is the “Rule of 115.”The Rule of 72The Rule of 72 states shows you how quickly you’ll double your money. This is the number of years required for your money to double.
If you think that doubling your money isn’t good enough, then the Rule of 115 is for you. This is the amount of time it takes you to triple your money.
This rule of thumb shows you how long it will take to TRIPLE your money. For example, if your money earns an 8 percent interest rate, it will triple in 14 years (115 divided by 8 equals 14.3.)If your money earns a 5 percent interest rate, it will triple in 23 years (115 divided by 5 equals 23.)Note that tripling your money is easier – in some respects -- than doubling your money.
If you’re earning a 5 percent interest rate, you’ll spend 14-and-a-half years trying to double it, but only an additional 9 years tripling it.
For example, if your money is earning an 8 percent interest rate, you’ll double your money in 9 years (72 divided by 8 equals 9.)If your money is earning a 5 percent interest rate, you’ll double it in 14.4 years (72 divided by 5 equals 14.4.)If your money is earning a measly 1 percent interest rate, it will take you – yep, you guessed it – a whopping 72 years to double it.
Remember: this is a “rule of thumb,” not an iron-clad law.