Latest news with #Ruleof72
Mint
3 days ago
- Business
- Mint
How much time does it take to double your money? Rule of 72 explains…
For most investors, amassing wealth to meet their goals is important, be it increasing your net worth, creating a good retirement fund, funding your or your children's education, building a wedding fund, and more. However, most may not know where to begin, or how. To guide in this, we bring you a simple do-it-yourself (DIY) rule of thumb known as the 'Rule of 72'. The 'Rule of 72' provides investors a basic calculated estimate of how many years it would take to double your money in any particular investment tool. The maths is simple: Divide the rate of returns by 72, the answer is the number of years it would take you to to double your investment in that particular instrument. According to Investopedia, The Rule of 72 is 'handy' for a quick mental guage of the approximate value of an investment. Key highlights: A simplified formula, it calculates how long it'll take for an investment to double in value, based on its rate of return. It applies to compounded interest rates and is 'reasonably accurate' for interest rates that fall in the range of 6-10 per cent. Besides investment, it can be applied all exponential increases such as inflation and GDP. Fixed deposits (FDs): Most bank FDs range from 7 days to 10 years, with varying interest rates. For banks such as State Bank of India and ICICI Bank, you can get anything between 3-7 per cent on FDs. Thus, if you intend to invest ₹ 1 lakh in a bank FD with an interest rate of 7 per cent per annum, let's calculate how long it would take to double your money using Rule of 72: 72/7 = 10.28 years. Most bank FDs range from 7 days to 10 years, with varying interest rates. For banks such as State Bank of India and ICICI Bank, you can get anything between 3-7 per cent on FDs. Thus, if you intend to invest 1 lakh in a bank FD with an interest rate of 7 per cent per annum, let's calculate how long it would take to double your money using Rule of 72: 72/7 = 10.28 years. Public Public Provident Fund (PPF): For the current financial year, the interest on PPF is 7.1 per cent, which using the Rule of 72, will also take you around 10 years to double investment: 72/7.1 = 10.14 years. For the current financial year, the interest on PPF is 7.1 per cent, which using the Rule of 72, will also take you around 10 years to double investment: 72/7.1 = 10.14 years. What about equities? If we consider Nifty50, it has given a 13.5 per cent return in 2024, and 80 per cent in five years. So, an investment of ₹ 1 lakh in equities will double ( ₹ 2 lakh) in five years assuming a 5.33 per cent interest rate. The formula is applied as below: 72/13.5 = 5.33 years. If we consider Nifty50, it has given a 13.5 per cent return in 2024, and 80 per cent in five years. So, an investment of 1 lakh in equities will double ( 2 lakh) in five years assuming a 5.33 per cent interest rate. The formula is applied as below: 72/13.5 = 5.33 years. Mutual funds: Disciplined investment in mutual funds are expected to give around 12-15 per cent means that an investment of ₹ 1 lakh in MFs will double ( ₹ 2 lakh) in six years assuming a 12 per cent interest rate: 72/12 = 6 years Disclaimer: We advise investors to check with certified experts before making any investment decisions.
The Advertiser
03-08-2025
- Business
- The Advertiser
The power of compound interest to build wealth
"You've long promoted the power of compounding, but frankly, I don't see the point. If it just means letting bank interest build up - and nearly half gets lost to tax - surely there are better strategies. Am I missing something?" Let's start with the maths: the Rule of 72. This simple rule tells you how long it takes for your money to double: divide 72 by your expected rate of return. If I have $100,000 earning 8 per cent, it will double every nine years. But if I leave it in the bank and earn just 3 per cent after tax, it will take 24 years to double. So your rate of return is vital. And the other crucial bit? Time: every time your money doubles, the final doubling adds more than all the earlier ones put together. Let's say you start with $100,000 earning 8 per cent. After nine years, it's $200,000. After 18 years, $400,000. Then $800,000 after 27 years-and by year 36, it's grown to $1.6 million. That's the magic of compounding. Now think about the person who just parks their money in the bank at 3 per cent. It takes 24 years to reach $200,000, and 48 years to get to $400,000. Meanwhile, the long-term investor is sitting on $4 million. These examples highlight just how vital both time and rate of return are. Let's dig a little deeper. Compounding simply means reinvesting your earnings instead of spending them. Take a share portfolio returning 9 per cent - 5 per cent from capital growth and 4 per cent from income. The investor who reinvests everything will enjoy the full 9 per cent, meaning their portfolio doubles every eight years. But the one who spends the dividends captures only the 5 per cent growth component, and their money doubles only every 14 years. So, to answer the email: compounding absolutely works, but it would be a mug's game to leave it sitting in the bank earning a pittance, especially after inflation and tax have taken their slice. CASE STUDY Jack and Jill are both 25 and earning $65,000 a year. Each has employer super contributions of 12 per cent. Jill is money-smart and ensures her super is invested in a high-growth option to maximise returns. Jack loves betting on the footy and doesn't think much about super. He leaves his funds in the default investment. As a result, his fund earns just 4 per cent a year. Fast-forward 40 years: Jill's super has grown to around $3.3 million; Jack's is just $1.3 million. That's a dramatic example of the power of compounding. Failing to use it to the maximum cost Jack $2 million. It's the difference between a comfortable retirement and one spent counting pennies. And compounding is just as important in retirement as it is while you're building wealth. Not only does the rate of return determine how much you retire with, it also dictates how long it lasts. Picture someone who retires at 65 with $1 million in super and plans to draw $60,000 a year, indexed. If their portfolio earns 8 per cent, the money will last until age 99. But if they play it too safe and earn just 4 per cent, they'll run out of funds by age 82 - and may have to rely entirely on the age pension. Understanding compounding doesn't just help with investing, it's also crucial when borrowing. I'll explore that in another column soon. Question: I'm a self-funded retiree with more money than I need to support my chosen lifestyle. I would like to gift $30,000 to each of my four sisters, all of whom are in their 70s. They're on a full pension, have minimal savings, and either rent or carry a small mortgage. Will these gifts affect their Centrelink age pension entitlements? Answer: Given they have minimal savings and no substantial assets, I cannot see how a gift could affect their age pension. I think it's great that you're doing something which can change peoples lives. Question: I have three adult children and would like each to receive one-third of my estate under my will. If I nominate my personal legal representative (the executor of my estate) as the beneficiary of my super, will this be as effective in minimising the superannuation death tax as the recontribution strategy-without the added complexity? It certainly appears to be more straightforward. Answer: The death tax on superannuation-15 per cent plus the Medicare levy-applies to the taxable component of your super when left to a non-dependent. If paid through your estate, the Medicare levy doesn't apply, but the 15 per cent death tax still does. The recontribution strategy-where someone under 75 withdraws a large amount from super and re-contributes it as a tax-free component-can reduce the taxable portion. But it's no cure-all. You can't select which component is withdrawn, and unless you withdraw the full balance and re-contribute, some taxable component will remain and grow with earnings. Also, once your balance exceeds $1.9 million or you turn 75, contributions are no longer allowed. In my view, the better strategy is to instruct your attorney to withdraw all super tax-free when death is near and transfer it to your bank account. That's the only way to completely eliminate the taxable component. Question: I'm 55 and about to leave my employer permanently. My superannuation preservation age is 60. Fortunately, I have enough investment income to retire now and don't intend to return to the workforce. Once I turn 60, I plan to access my super. However, the ATO states that "you can withdraw your super when you reach your preservation age and retire," which seems to suggest that retirement must occur after age 60. If I've already left work before turning 60, will I still meet the condition of release once I reach 60? Answer: Yes, you will satisfy the condition of release once you turn 60, provided you have genuinely retired and have no intention of returning to the workforce. The rules distinguish between retiring before 60 and retiring after 60, but in your case the key factor is your status and intention at age 60. Although you will have ceased work before reaching your preservation age, once you turn 60, you can access your superannuation on the basis that you are retired and have no plan to return to gainful employment. There is no requirement that you must actually leave work after your 60th birthday. As long as you are over 60 and not working, the retirement condition of release is met. "You've long promoted the power of compounding, but frankly, I don't see the point. If it just means letting bank interest build up - and nearly half gets lost to tax - surely there are better strategies. Am I missing something?" Let's start with the maths: the Rule of 72. This simple rule tells you how long it takes for your money to double: divide 72 by your expected rate of return. If I have $100,000 earning 8 per cent, it will double every nine years. But if I leave it in the bank and earn just 3 per cent after tax, it will take 24 years to double. So your rate of return is vital. And the other crucial bit? Time: every time your money doubles, the final doubling adds more than all the earlier ones put together. Let's say you start with $100,000 earning 8 per cent. After nine years, it's $200,000. After 18 years, $400,000. Then $800,000 after 27 years-and by year 36, it's grown to $1.6 million. That's the magic of compounding. Now think about the person who just parks their money in the bank at 3 per cent. It takes 24 years to reach $200,000, and 48 years to get to $400,000. Meanwhile, the long-term investor is sitting on $4 million. These examples highlight just how vital both time and rate of return are. Let's dig a little deeper. Compounding simply means reinvesting your earnings instead of spending them. Take a share portfolio returning 9 per cent - 5 per cent from capital growth and 4 per cent from income. The investor who reinvests everything will enjoy the full 9 per cent, meaning their portfolio doubles every eight years. But the one who spends the dividends captures only the 5 per cent growth component, and their money doubles only every 14 years. So, to answer the email: compounding absolutely works, but it would be a mug's game to leave it sitting in the bank earning a pittance, especially after inflation and tax have taken their slice. CASE STUDY Jack and Jill are both 25 and earning $65,000 a year. Each has employer super contributions of 12 per cent. Jill is money-smart and ensures her super is invested in a high-growth option to maximise returns. Jack loves betting on the footy and doesn't think much about super. He leaves his funds in the default investment. As a result, his fund earns just 4 per cent a year. Fast-forward 40 years: Jill's super has grown to around $3.3 million; Jack's is just $1.3 million. That's a dramatic example of the power of compounding. Failing to use it to the maximum cost Jack $2 million. It's the difference between a comfortable retirement and one spent counting pennies. And compounding is just as important in retirement as it is while you're building wealth. Not only does the rate of return determine how much you retire with, it also dictates how long it lasts. Picture someone who retires at 65 with $1 million in super and plans to draw $60,000 a year, indexed. If their portfolio earns 8 per cent, the money will last until age 99. But if they play it too safe and earn just 4 per cent, they'll run out of funds by age 82 - and may have to rely entirely on the age pension. Understanding compounding doesn't just help with investing, it's also crucial when borrowing. I'll explore that in another column soon. Question: I'm a self-funded retiree with more money than I need to support my chosen lifestyle. I would like to gift $30,000 to each of my four sisters, all of whom are in their 70s. They're on a full pension, have minimal savings, and either rent or carry a small mortgage. Will these gifts affect their Centrelink age pension entitlements? Answer: Given they have minimal savings and no substantial assets, I cannot see how a gift could affect their age pension. I think it's great that you're doing something which can change peoples lives. Question: I have three adult children and would like each to receive one-third of my estate under my will. If I nominate my personal legal representative (the executor of my estate) as the beneficiary of my super, will this be as effective in minimising the superannuation death tax as the recontribution strategy-without the added complexity? It certainly appears to be more straightforward. Answer: The death tax on superannuation-15 per cent plus the Medicare levy-applies to the taxable component of your super when left to a non-dependent. If paid through your estate, the Medicare levy doesn't apply, but the 15 per cent death tax still does. The recontribution strategy-where someone under 75 withdraws a large amount from super and re-contributes it as a tax-free component-can reduce the taxable portion. But it's no cure-all. You can't select which component is withdrawn, and unless you withdraw the full balance and re-contribute, some taxable component will remain and grow with earnings. Also, once your balance exceeds $1.9 million or you turn 75, contributions are no longer allowed. In my view, the better strategy is to instruct your attorney to withdraw all super tax-free when death is near and transfer it to your bank account. That's the only way to completely eliminate the taxable component. Question: I'm 55 and about to leave my employer permanently. My superannuation preservation age is 60. Fortunately, I have enough investment income to retire now and don't intend to return to the workforce. Once I turn 60, I plan to access my super. However, the ATO states that "you can withdraw your super when you reach your preservation age and retire," which seems to suggest that retirement must occur after age 60. If I've already left work before turning 60, will I still meet the condition of release once I reach 60? Answer: Yes, you will satisfy the condition of release once you turn 60, provided you have genuinely retired and have no intention of returning to the workforce. The rules distinguish between retiring before 60 and retiring after 60, but in your case the key factor is your status and intention at age 60. Although you will have ceased work before reaching your preservation age, once you turn 60, you can access your superannuation on the basis that you are retired and have no plan to return to gainful employment. There is no requirement that you must actually leave work after your 60th birthday. As long as you are over 60 and not working, the retirement condition of release is met. "You've long promoted the power of compounding, but frankly, I don't see the point. If it just means letting bank interest build up - and nearly half gets lost to tax - surely there are better strategies. Am I missing something?" Let's start with the maths: the Rule of 72. This simple rule tells you how long it takes for your money to double: divide 72 by your expected rate of return. If I have $100,000 earning 8 per cent, it will double every nine years. But if I leave it in the bank and earn just 3 per cent after tax, it will take 24 years to double. So your rate of return is vital. And the other crucial bit? Time: every time your money doubles, the final doubling adds more than all the earlier ones put together. Let's say you start with $100,000 earning 8 per cent. After nine years, it's $200,000. After 18 years, $400,000. Then $800,000 after 27 years-and by year 36, it's grown to $1.6 million. That's the magic of compounding. Now think about the person who just parks their money in the bank at 3 per cent. It takes 24 years to reach $200,000, and 48 years to get to $400,000. Meanwhile, the long-term investor is sitting on $4 million. These examples highlight just how vital both time and rate of return are. Let's dig a little deeper. Compounding simply means reinvesting your earnings instead of spending them. Take a share portfolio returning 9 per cent - 5 per cent from capital growth and 4 per cent from income. The investor who reinvests everything will enjoy the full 9 per cent, meaning their portfolio doubles every eight years. But the one who spends the dividends captures only the 5 per cent growth component, and their money doubles only every 14 years. So, to answer the email: compounding absolutely works, but it would be a mug's game to leave it sitting in the bank earning a pittance, especially after inflation and tax have taken their slice. CASE STUDY Jack and Jill are both 25 and earning $65,000 a year. Each has employer super contributions of 12 per cent. Jill is money-smart and ensures her super is invested in a high-growth option to maximise returns. Jack loves betting on the footy and doesn't think much about super. He leaves his funds in the default investment. As a result, his fund earns just 4 per cent a year. Fast-forward 40 years: Jill's super has grown to around $3.3 million; Jack's is just $1.3 million. That's a dramatic example of the power of compounding. Failing to use it to the maximum cost Jack $2 million. It's the difference between a comfortable retirement and one spent counting pennies. And compounding is just as important in retirement as it is while you're building wealth. Not only does the rate of return determine how much you retire with, it also dictates how long it lasts. Picture someone who retires at 65 with $1 million in super and plans to draw $60,000 a year, indexed. If their portfolio earns 8 per cent, the money will last until age 99. But if they play it too safe and earn just 4 per cent, they'll run out of funds by age 82 - and may have to rely entirely on the age pension. Understanding compounding doesn't just help with investing, it's also crucial when borrowing. I'll explore that in another column soon. Question: I'm a self-funded retiree with more money than I need to support my chosen lifestyle. I would like to gift $30,000 to each of my four sisters, all of whom are in their 70s. They're on a full pension, have minimal savings, and either rent or carry a small mortgage. Will these gifts affect their Centrelink age pension entitlements? Answer: Given they have minimal savings and no substantial assets, I cannot see how a gift could affect their age pension. I think it's great that you're doing something which can change peoples lives. Question: I have three adult children and would like each to receive one-third of my estate under my will. If I nominate my personal legal representative (the executor of my estate) as the beneficiary of my super, will this be as effective in minimising the superannuation death tax as the recontribution strategy-without the added complexity? It certainly appears to be more straightforward. Answer: The death tax on superannuation-15 per cent plus the Medicare levy-applies to the taxable component of your super when left to a non-dependent. If paid through your estate, the Medicare levy doesn't apply, but the 15 per cent death tax still does. The recontribution strategy-where someone under 75 withdraws a large amount from super and re-contributes it as a tax-free component-can reduce the taxable portion. But it's no cure-all. You can't select which component is withdrawn, and unless you withdraw the full balance and re-contribute, some taxable component will remain and grow with earnings. Also, once your balance exceeds $1.9 million or you turn 75, contributions are no longer allowed. In my view, the better strategy is to instruct your attorney to withdraw all super tax-free when death is near and transfer it to your bank account. That's the only way to completely eliminate the taxable component. Question: I'm 55 and about to leave my employer permanently. My superannuation preservation age is 60. Fortunately, I have enough investment income to retire now and don't intend to return to the workforce. Once I turn 60, I plan to access my super. However, the ATO states that "you can withdraw your super when you reach your preservation age and retire," which seems to suggest that retirement must occur after age 60. If I've already left work before turning 60, will I still meet the condition of release once I reach 60? Answer: Yes, you will satisfy the condition of release once you turn 60, provided you have genuinely retired and have no intention of returning to the workforce. The rules distinguish between retiring before 60 and retiring after 60, but in your case the key factor is your status and intention at age 60. Although you will have ceased work before reaching your preservation age, once you turn 60, you can access your superannuation on the basis that you are retired and have no plan to return to gainful employment. There is no requirement that you must actually leave work after your 60th birthday. As long as you are over 60 and not working, the retirement condition of release is met. "You've long promoted the power of compounding, but frankly, I don't see the point. If it just means letting bank interest build up - and nearly half gets lost to tax - surely there are better strategies. Am I missing something?" Let's start with the maths: the Rule of 72. This simple rule tells you how long it takes for your money to double: divide 72 by your expected rate of return. If I have $100,000 earning 8 per cent, it will double every nine years. But if I leave it in the bank and earn just 3 per cent after tax, it will take 24 years to double. So your rate of return is vital. And the other crucial bit? Time: every time your money doubles, the final doubling adds more than all the earlier ones put together. Let's say you start with $100,000 earning 8 per cent. After nine years, it's $200,000. After 18 years, $400,000. Then $800,000 after 27 years-and by year 36, it's grown to $1.6 million. That's the magic of compounding. Now think about the person who just parks their money in the bank at 3 per cent. It takes 24 years to reach $200,000, and 48 years to get to $400,000. Meanwhile, the long-term investor is sitting on $4 million. These examples highlight just how vital both time and rate of return are. Let's dig a little deeper. Compounding simply means reinvesting your earnings instead of spending them. Take a share portfolio returning 9 per cent - 5 per cent from capital growth and 4 per cent from income. The investor who reinvests everything will enjoy the full 9 per cent, meaning their portfolio doubles every eight years. But the one who spends the dividends captures only the 5 per cent growth component, and their money doubles only every 14 years. So, to answer the email: compounding absolutely works, but it would be a mug's game to leave it sitting in the bank earning a pittance, especially after inflation and tax have taken their slice. CASE STUDY Jack and Jill are both 25 and earning $65,000 a year. Each has employer super contributions of 12 per cent. Jill is money-smart and ensures her super is invested in a high-growth option to maximise returns. Jack loves betting on the footy and doesn't think much about super. He leaves his funds in the default investment. As a result, his fund earns just 4 per cent a year. Fast-forward 40 years: Jill's super has grown to around $3.3 million; Jack's is just $1.3 million. That's a dramatic example of the power of compounding. Failing to use it to the maximum cost Jack $2 million. It's the difference between a comfortable retirement and one spent counting pennies. And compounding is just as important in retirement as it is while you're building wealth. Not only does the rate of return determine how much you retire with, it also dictates how long it lasts. Picture someone who retires at 65 with $1 million in super and plans to draw $60,000 a year, indexed. If their portfolio earns 8 per cent, the money will last until age 99. But if they play it too safe and earn just 4 per cent, they'll run out of funds by age 82 - and may have to rely entirely on the age pension. Understanding compounding doesn't just help with investing, it's also crucial when borrowing. I'll explore that in another column soon. Question: I'm a self-funded retiree with more money than I need to support my chosen lifestyle. I would like to gift $30,000 to each of my four sisters, all of whom are in their 70s. They're on a full pension, have minimal savings, and either rent or carry a small mortgage. Will these gifts affect their Centrelink age pension entitlements? Answer: Given they have minimal savings and no substantial assets, I cannot see how a gift could affect their age pension. I think it's great that you're doing something which can change peoples lives. Question: I have three adult children and would like each to receive one-third of my estate under my will. If I nominate my personal legal representative (the executor of my estate) as the beneficiary of my super, will this be as effective in minimising the superannuation death tax as the recontribution strategy-without the added complexity? It certainly appears to be more straightforward. Answer: The death tax on superannuation-15 per cent plus the Medicare levy-applies to the taxable component of your super when left to a non-dependent. If paid through your estate, the Medicare levy doesn't apply, but the 15 per cent death tax still does. The recontribution strategy-where someone under 75 withdraws a large amount from super and re-contributes it as a tax-free component-can reduce the taxable portion. But it's no cure-all. You can't select which component is withdrawn, and unless you withdraw the full balance and re-contribute, some taxable component will remain and grow with earnings. Also, once your balance exceeds $1.9 million or you turn 75, contributions are no longer allowed. In my view, the better strategy is to instruct your attorney to withdraw all super tax-free when death is near and transfer it to your bank account. That's the only way to completely eliminate the taxable component. Question: I'm 55 and about to leave my employer permanently. My superannuation preservation age is 60. Fortunately, I have enough investment income to retire now and don't intend to return to the workforce. Once I turn 60, I plan to access my super. However, the ATO states that "you can withdraw your super when you reach your preservation age and retire," which seems to suggest that retirement must occur after age 60. If I've already left work before turning 60, will I still meet the condition of release once I reach 60? Answer: Yes, you will satisfy the condition of release once you turn 60, provided you have genuinely retired and have no intention of returning to the workforce. The rules distinguish between retiring before 60 and retiring after 60, but in your case the key factor is your status and intention at age 60. Although you will have ceased work before reaching your preservation age, once you turn 60, you can access your superannuation on the basis that you are retired and have no plan to return to gainful employment. There is no requirement that you must actually leave work after your 60th birthday. As long as you are over 60 and not working, the retirement condition of release is met.
News18
29-07-2025
- Business
- News18
How Long Will It Take To Quadruple Your Money? Use The Rule Of 144
The Rule of 144 is a useful calculation that helps evaluate the time required for an investment to quadruple using the power of compounding. For every investor, be it a small or big one, the main goal is to grow their wealth and build long-term financial growth. But investing is more than simply buying the right stocks or funds; it is also about determining how long it will take for your money to grow. The Rule of 144 is a useful calculation that helps evaluate the time required for an investment to quadruple using the power of compounding. This rule provides a simple way to demonstrate the growth of your investments, allowing you to plan and strategise successfully. What Is The Rule Of 144? The Rule of 144 is a financial guideline that determines the number of years required for an investment to quadruple (grow four times) at a certain yearly return rate. To use this rule, divide 144 by the annual interest rate. For instance, if the annual return rate is 10 per cent, the calculation would be 144 divided by 10, yielding 14.4 years. Similarly, if the return rate is 8 per cent, then the calculation would be 144 divided by 8 = 18 years. This rule provides investors with a simple and quick approach to estimate how long it will take for their investments to grow four times, making it ideal for long-term financial planning and investment decisions. The Rule of 144 is said to be an improved version of the well-known Rule of 72, which predicts how soon an investment will double. Instead, the Rule of 144 estimates when your investment will be four times its initial worth. The formula for calculating is pretty easy, as you can calculate it by dividing 144 by the annual interest rate. For example, if you invest Rs 1 Lakh at a 12 per cent annual interest rate. To determine how long it will take for your investment to grow to Rs 4 Lakh, apply the given formula. Therefore, at a 12 per cent annual return rate, it will take around 12 years for your Rs 1 Lakh investment to get to Rs 4 Lakh. This formula provides a quick and straightforward approach to determining how long it will take for your investment to increase. Understanding the Rule of 144 could help people seeking to increase their wealth in establishing realistic investment goals. By selecting the appropriate investment vehicle—whether mutual funds, equities, or other instruments—investors may ensure that their money grows efficiently over time. view comments First Published: Disclaimer: Comments reflect users' views, not News18's. Please keep discussions respectful and constructive. Abusive, defamatory, or illegal comments will be removed. News18 may disable any comment at its discretion. By posting, you agree to our Terms of Use and Privacy Policy.
News18
23-07-2025
- Business
- News18
How The Rule Of 72 Can Help You Double Your Money
Last Updated: The Rule of 72 is a simple formula that helps you estimate how long it takes to double your money with compound interest. Managing money wisely means understanding how your investments can grow over time. One simple tool that can help is the Rule of 72. It is not complicated or technical—just a quick math trick that gives you a rough idea of how long it will take to double your money at a given rate of return. Let's break it down in a simple way. What Is the Rule of 72? The Rule of 72 is a quick formula used to estimate how many years it will take for your investment to double in value, based on a fixed annual rate of return. It is a handy tool for investors, savers, or anyone curious about how interest affects their money over time. Instead of using a calculator or complex financial formulas, the Rule of 72 offers a fast and fairly accurate shortcut. The Formula Here's the basic formula: 72 ÷ 6 = 12 years The rule is based on the concept of compound interest, where your returns earn additional returns over time. The Rule of 72 gives an approximation of this compounding effect. Here are a few more examples: At 9 per cent interest, money doubles in 8 years (72 ÷ 9). At 12 per cent, it doubles in 6 years. At just 3 per cent, it takes 24 years. It works best with interest rates between 6 per cent and 10 per cent, though it can still give a rough idea outside this range. Advantages of the Rule of 72 – Simplicity: You don't need to be a math expert. The calculation is quick and simple. – Planning Tool: It helps you set realistic financial goals by estimating how long it will take to grow your money. – Comparing Options: You can easily compare different investment returns to see which one doubles your money faster. – Awareness of Inflation: You can even use the Rule of 72 to understand how inflation eats into your money's value. For example, if inflation is 6 per cent, the value of money halves in 12 years (72 ÷ 6). The Rule of 72 is not a perfect tool, but it is a smart, quick way to get a rough estimate of growth. Whether you're investing, saving, or planning your financial future, this simple rule can help you make better decisions and understand the power of compounding. view comments Disclaimer: Comments reflect users' views, not News18's. Please keep discussions respectful and constructive. Abusive, defamatory, or illegal comments will be removed. News18 may disable any comment at its discretion. By posting, you agree to our Terms of Use and Privacy Policy.
The Hindu
14-07-2025
- Business
- The Hindu
Some rules to open the gates of financial freedom
A luxury flat, SUV, holiday tour abroad and at least ₹1 crore in bank balance are everyone's dream. However, only a few realise such kind of dreams and the remaining 'unlucky' lot end up thinking these are possible only for those born rich. Whereas most financial experts believe proper planning is all that is needed to become rich. Of course, financial planning could be a labyrinth of calculations and choices that might seem to be difficult to understand, but if you get a grip on the patterns and formulae, passed on by financial experts, it's much easier to attain financial freedom. Let's catch up with the numbers. 15*15*15 Rule Not just the super-rich, even a salaried individual can accumulate ₹1 crore if he/she follows the 15*15*15 Rule. Save ₹15,000 a month for 15 years continuously, without any single default in monthly savings, in a 15% CAGR generating mutual fund. If he/she wishes to continue the same for another 15 years, he/she would have saved a whopping ₹10.5 crore. The magic lies in compounding and consistency is the key. Rule of 72 It's a simple trick or a calculation to find out how long it will take for your investment to double at a fixed rate of return. To find the number of years, just divide the number 72 by the interest rate you will receive on your investment. For instance, if you receive 6% interest per annum, money doubles in just 12 years (72/6). Not just this, with this formula, you can calculate the ideal rate of return if you want to double investment in certain number of years. Say, for example, if you want to double investment in four years, you should get 18% interest per annum. Just divide 72 by the number of years. Rule of 114 The Rule of 114 is much like Rule of 72 and tells you when investment triples. Just divide 114 by the annual interest rate received to find out how many years you need for wealth to grow threefold. If interest per annum is 6%, money triples in 19 years (114/6). If you want to triple investment in just five years, you should get 22.8% interest per annum (114/5). Rule of 144 This Rule tells you when your investment quadruples in value — just a simple division. 50/30/20 Rule Budgeting is crucial to the country and to individuals as well. It might be quite complicated with limited resources and vast goals; however, the 50/30/20 Rule comes in handy to make the budgeting process easier and sustainable. Divide net-income (after tax deductions) into three major categories: 50% for essentials such as rent or housing EMI, groceries, medicines, utilities etc.; 30% for wishes such as entertainment, tour, shopping etc. and balance 20% for savings and debt repayment. Some financial experts add the debt repayment in the first 50% category leaving the 20% category only for savings. 100 Minus Age Rule The most fundamental question in personal finance is on asset allocation. That is, how much money is to be allocated to buy risky assets such as stock markets and how much should be parked in conservative investment products. The 100 Minus Age Rule answers this dilemma. As per this rule, one must subtract his/her age from 100 to determine the percentage of equity portfolio, and the rest allocated to low-risk assets or traditional fixed/recurring deposits. If you are 30, 70% (100–30) of your investment can be in equities, and 30% in bonds, FDs, or other debt funds. However, this rule cannot be taken blindly and just gives a fair idea. A young man who is the breadwinner of his family with more commitments can't invest 70% in equities, whereas a septuagenarian pensioner without commitment and is well taken care by children, can invest more in equities. 10X Insurance Rule The 10X Rule helps an individual calculate the amount of life cover his/her dependents would require in his/her absence. As per this Rule, the term life insurance cover should at least be 10 times his/her gross annual income. However, this rule has its own limitations and might not be suitable for everyone. The Rule doesn't consider factors such as age, specific family needs, number of dependents etc. While these number-based thumb rules are shortcuts to crack the code of complicated personal finance decisions, one size doesn't fit all. So, care must be taken while taking important financial decisions. (The writer is an NISM & CRISIL-certified Wealth Manager)
