Make The Rule Of 72 Work For You !
Once upon a time an Overseas Filipino Worker (OFW) started working abroad. At the age of 29 he had already saved a total of P 100,000.00 (Philippine peso)
Since the only investment vehicle he knew about was putting his money at the bank he went to the bank and deposited his P 100,000.00. The bank manager gladly accepted the money and even recommended that he put it at a time deposit account so that it would yield a higher interest rate at 4 % per annum.
So the money remained in the time deposit account until the OFW reached the age of 65. At that time, he then went back to the bank to withdraw the P 100,000.00. He was amazed when he learned that the P100,000.00 had already grown to P 400,000.00. He was quite happy with the growth of his money. He then withdrew the money from the bank, enjoyed life and lived happily ever after.
Is this a "live happily ever after" story or not? Do you consider this OFW as somebody who has "wisely" handled his money? Is he really earning the maximum potential for his money or is he making somebody else rich.
Under the rule of 72, in order to determine how many years it takes for your money to double you only need to follow this very simple equation: 72 / interest = No. of years it takes for your money to double
For this certain OFW, his money will double every 18 years. This is simply solved by applying the rule of 72 which is computed as follows: 72 divided 4 % per annum = 18 years. This means that if you add 18 years from the time he deposited his money, the P 100,000.00 will double to P 200,000.00 when he reaches the age of 47. After 18 more years when he reaches the age of 65, his money will already become P 400,000.00.
Now that the P 100,000.00 is in the bank's hand, what do they do with it ? Well they basically invest it in other vehicles of investments which gives them a higher interest rate such as mutual funds, the stock market, the money market, government bonds, corporate bonds etc. They even use it to loan it back to the depositors at a much more higher interest rate. But let's just say that all of the bank's investing activities gave a return of 12 % per annum. Using the rule of 72, it can be determined that the same amount of money will double every 6 years. (computed as follows: 72 divided by 12 % interest = 6 years)
So when the OFW went back to the bank after 36 years and claimed his P 100,000.00 the bank manager gladly gave him back his P 100,000.00 plus the interest of P 300,000 amounting to P 400,000.00. After all they already made P 6 million pesos out of the OFW's P 100,000.00. Now isn't that hi-way robbery?
You want to be wealthy and a better steward of your money? Think like the bank!!! Use the Rule of 72 wisely ! Make it work for you !
Since the only investment vehicle he knew about was putting his money at the bank he went to the bank and deposited his P 100,000.00. The bank manager gladly accepted the money and even recommended that he put it at a time deposit account so that it would yield a higher interest rate at 4 % per annum.
So the money remained in the time deposit account until the OFW reached the age of 65. At that time, he then went back to the bank to withdraw the P 100,000.00. He was amazed when he learned that the P100,000.00 had already grown to P 400,000.00. He was quite happy with the growth of his money. He then withdrew the money from the bank, enjoyed life and lived happily ever after.
Is this a "live happily ever after" story or not? Do you consider this OFW as somebody who has "wisely" handled his money? Is he really earning the maximum potential for his money or is he making somebody else rich.
Under the rule of 72, in order to determine how many years it takes for your money to double you only need to follow this very simple equation: 72 / interest = No. of years it takes for your money to double
For this certain OFW, his money will double every 18 years. This is simply solved by applying the rule of 72 which is computed as follows: 72 divided 4 % per annum = 18 years. This means that if you add 18 years from the time he deposited his money, the P 100,000.00 will double to P 200,000.00 when he reaches the age of 47. After 18 more years when he reaches the age of 65, his money will already become P 400,000.00.
Now that the P 100,000.00 is in the bank's hand, what do they do with it ? Well they basically invest it in other vehicles of investments which gives them a higher interest rate such as mutual funds, the stock market, the money market, government bonds, corporate bonds etc. They even use it to loan it back to the depositors at a much more higher interest rate. But let's just say that all of the bank's investing activities gave a return of 12 % per annum. Using the rule of 72, it can be determined that the same amount of money will double every 6 years. (computed as follows: 72 divided by 12 % interest = 6 years)
So when the OFW went back to the bank after 36 years and claimed his P 100,000.00 the bank manager gladly gave him back his P 100,000.00 plus the interest of P 300,000 amounting to P 400,000.00. After all they already made P 6 million pesos out of the OFW's P 100,000.00. Now isn't that hi-way robbery?
You want to be wealthy and a better steward of your money? Think like the bank!!! Use the Rule of 72 wisely ! Make it work for you !
About the Author:
Want to know more about investment strategies ? Visit the blog of Zigfred Diaz where he writes about several interesting topics such as investments, money management, business, making money online and Stock market investing