Have you heard of the great powerful, and easy equation of 72? If you haven’t your missing out on a good little tool to help you gain information of where to invest money so you can get double your cash!

Einstein got it right when he mentioned how the greatest formula of all time was compound interest. With the Rule of 72, you can make a calculation of how much time has an effect on your money via the interest rate. Here is how it works.

Take the interest rate and divide it into 72. So, for example, let’s say you have $1,000 in an account with a 7.5% interest rate. With our little calculation (72 / 7.5 = 9.6) we get 9.6 years until your money doubles. Of course this is all approximate calculations and there is a more advanced formula to get the exact time, but this simple one works on the go.

5% = 14.4 years
10% = 7.2 years
15% = 4.8 years

You can also use it backwards to find out the interest rate needed to double your money in a set time period. Just take 72 and divide it by the number of years you wish to double your money in. So, like all people who wish to get rich quick, let’s find out how much interest we need for 2 years. So it would be 72 / 2 = 36.0. There you have it. Find a place that offers 36% interest rate and you got it made in just 2 years.

2 years = 36%
5 years = 14.4%
10 years = 7.2%

Alright, so now we have the “on the go” calculations for compound interest but what is the formula for the exact time? Let’s take a look at it:

2P = P * (1 + r/100) ^t

P = principal
r = interest rate (%)
t = number of years
2P = doubling amount

Alright, so let’s see; let’s say we got an interest rate of 10%. So r becomes 10.

So we get 2P = P * (1 + 10/100) ^t

Then we cancel the Ps out and do what is in the parentheses.

2 = (1 + 10/100) ^t
2 = 1.1^t

Next, we will use calculus for our natural logarithms “ln” so its what?
ln (a^b) = b * ln (a)

Therefore,
ln (2) = ln (1.1^t)
ln (2) = t * ln (1.1)

So this comes out to…

t = 7.2725 years.

Whoa. A lot of calculations right? So wouldn’t it be simpler with just the grab and go version? I think so. Well, just for kicks, I’ll give you the years for the following interest rates.

5 years = 14.21
10 years = 7.27
15 years = 4.96
20 years = 3.80

So, if you haven’t learned anything at least take this away from the lesson, make money work for you is the ultimate goal of saving. With simple tools like this, you can make money grow in just a few years.