You may have heard of the rule of 72.
Also known as ‘the banker’s rule’, this rule
determines how your money doubles when invested.
The financial industry doesn’t want you to know how this works because it will...
well, wake you up. I personally believe it should be taught in every school.
That’s how important it is.
It goes like this:
The number 72 divided by the interest rate (return on investment) will equal the number of years it will take for your money to double.
For example, most people put money in their bank and they get a 1% return.
So, you divide 72 by 1
That looks like this: 72 ÷ 1 = 72
which means it will take you 72 years to double your money.
Likewise, if you put $10,000 in the bank at 1% return, it will take 72 years to get it to $20,000.
So ask yourself this: how many 72 year periods do you have in your life?
Maybe one, if you’re still real young.
I don’t know about you, but I don’t want to wait that long for my money to double.
I like this quick little video. It explains the rule of 72 very clearly.
How long do want to take to double your money?
Most banks are paying you less than 1% on your money. Then, they turn around and loan it back to you in the form of credit cards and mortgages.
If you want to be mindful of where you invest your money, 1% in the bank is probably not going to get you where you want to be.
So what if you raise the percent interest to 6%? You will double your money in 12 years. How many 12 year periods do you have in your life? Quite a few.
Raise the percent interest to 9% and you are doubling your money every 8 years.
This will really help you to grow your wealth. This will allow you to become independent.
I get asked this all the time: Where am I going to get a 9% return?
Double Your Money Faster
That sweet spot of creating wealth--somewhere between the 6 - 12% range--
is going to really increase your odds of being financially free.
There are several areas where you can realize these kinds of returns.
How much money do I need to begin?
Not as much as you might think.
Let’s take the stock market, for example. You can begin with as little as $500 to $1000. Then, you add to it as you go. Certainly there are ins and outs to investing in stocks. What to buy. When to sell and when to buy.
It can quickly become overwhelming, I know. However, think about this:
The key point is that you want to begin.
To be a smart investor. To build your wealth so you can reach your goals. To retire.
To send your kid to college. To start that business or non-profit. To travel.
To give away. Whatever your dreams, visions, goals, you must begin at some point to build the funds to make them happen.
...you can simply put it in the bank, where you’re going to pay more in taxes than you’ll ever earn.
There’s a reason Warren Buffett is Warren Buffett
You’ve probably heard of billionaire Warren Buffett. He is often quoted because he is a natural genius when it comes to investing. He made his first profit when he was five years old selling cola drinks from his dad’s store.
I bring up Mr. Buffett, not because he is quoted so frequently or because he is a billionaire. I bring him up because he is a billionaire who started when he was five years old selling sodas he bought from his dad’s store and selling them for a profit.
I bring him up because he and his wife lived in a small, shabby apartment when they were first married. I bring him up because he did not begin as a billionaire.
Warren Buffett is a billionaire today because he followed the rule of 72.
The story goes that when Buffett was 26 years old, he quit his job in New York to return to his hometown of Omaha, Nebraska. He wanted to begin an investment fund. He visited every one of his father’s friends, literally knocking on their doors wearing his one, old tatty suit. Now, this was middle America in the 50s and they were people who knew him as a small boy. So they gave him some time.
And with that time, Buffett began by explaining the rule of 72. They did not all listen. They did not all invest with him. But some of them did. And those who did?
They all became millionaires. Quickly.
(Click here if you are interested in a timeline of Buffett’s life.)
Earlier I said I did not bring up Mr. Buffett because he is so quotable. He is well known, however, for his quotes. Because they are true.
I want to wrap up this post with this one of his.
“Risk comes from not knowing what you’re doing.”
After reading this blog post, you now know something. You now know the rule of 72.
Will there always be risk in investing? Sure. There’s risk in any action you take.
But I believe there is much more risk in inaction.
Reduce the risk in your financial future. Be prepared. Take action.
I’m always ready to sit down if you want to know more.
Give me a call and let’s take some time to connect.
Click here to open my calendar and schedule a call with me.