The Get-Rich Formula

Have you ever asked yourself how rich people get richer? If yes, then this was written for you. I'm sure most of you have already guessed what I'm talking about. there's a formula called rule 72. The rule 72 is simply a way to estimate the time an investment will take to double, given a determined annual rate of interest.

I don't know about you, but I think we all should learn this kind of things in high school. But unfortunately, You will learn this formula from college mathematics or probability and statistics. I can be wrong though; maybe some high school does teach it to their students.

The formula is quite simple. 72 is divided by the interest percentage or interest rate to obtain the time period required for the investment to be doubled. Considering years, the formula will tell exactly how many years your money will be doubled when invested. For example: you have $500 and your interest rate is 4%, you compute as follow: 72/4=18. therefore it will take 18 years for you to see $1,000. However, at higher interest rates, the estimations are less accurate. The formula fits better with lower interest percentages.

With the rule 72, it don't matter how much you have since the formula does not consider the amount of your money in the calculation process. It makes sens, don't it? For example: John has $500 and Marc $500,000. Both amounts will double after 18 years if the interest rate is 4%. You're probably wondering how this formula can possibly help you to get richer. Let's say for example that you have a 1% interest rate, it would take you 72 years to double your money. But if you have 7% interest rate, it would only take 10 years. Consider a $20,000 investment with 7% interest rate. After 10 years, you will have $40,000. after 20, you will have $80,000 and so on. See the difference now! The results will be different if you regularly add more money. Consequently, your final amount will be greater than what expected. It sure is an easy way to get rich.

Keep in mind one thing though; the rule 72 can only be exact if there's no interest rate variations. The impacts of taxes and inflations can influence the expected value. It also depends on how soon you start. Time is you number one ally. The formula is most of the time used to compare the growth of two investments or the to understand the impact of inflations.