Financial Education: The Rule of 72

“The Rule of 72 should be taught in grade school,” said my mentor as she explained the financial planning model to my mom. I was training with a company to be a financial planner until I realized that I was being taught sales but not a whole lot about financial planning. Even at that time, I didn’t understand what was so amazing about the Rule of 72.

The Rule of 72 states that if you divide 72 by the rate you’re earning on your money, you get the time it will take for your money to double. For example, let’s say you’re earning 6% on your money. 72 divided by 6 is 12. At the rate of 6%, your money will double in about 12 years.

Financial planners get very excited about the Rule of 72. Personally, I don’t see the point. I don’t care how long it will take my money to double specifically. What I want to know is what it will take for me to reach my financial goals. What rate do I need to be making on my money? How much do I need invested? How much time do I need?

For this I use a Financial Calculator. Obviously, if you only have access to a basic calculator or are doing the calculations mentally, the Rule of 72 could be a useful tool.

Now you have access to both. If you find the Rule of 72 enlightening and useful, that’s great. Use what works for you.