The Rule of 72: Is Your Money Working For You Or Against You?

The Rule of 72 is about the magic of chemical compound interest. Prince Albert Albert Einstein supposedly once said that chemical compound interest is "the top mathematical discovery of all time." I don't cognize if the legendary genius actually made such as a statement. But if he didn't, he should have.

The Rule of 72 is a regulation of pollex that tin aid you calculate when your money will duplicate at a given interest rate. Just split the annual rate of tax return you anticipate to have and watershed it into the number 72 and it will state you how long it will take to duplicate your money.

For example, if you can get 10% A twelvemonth on your investments, your money will duplicate every 7.2 old age (72 divided by 10). If you can get 20%, your money will duplicate every 3.2 years. If you can only get 5%, it will take you 14.4 old age to duplicate your money.

Of course, that's with money workings for you rather than against you. If you take to have got your money workings against you rather than for you, the Rule of 72 will work in reverse. If you borrow $10,000 at 10%, and you don't do any payments on your debt, in 7.2 old age you will owe $20,000.

Credit card debt is the ultimate in having your money workings against you. According to The Assortment Fool's Credit Center (http://www.fool.com/ccc/secrets/secrets.htm) here's the world of credit card debt...

Total consumer credit: $1.7 trillion.
Total finance charges paid in 2001: $50 billion

Market capitalization of AT&T -- the full corporation: $1.6 billion

Percent of U.S. households deemed "credit worthy" by the lending industry: 78%

Credit card debt carried by the average American: $8,562

Number of credit card holders declaring bankruptcy last year: 1.3 million

If you have got got a credit card debt of $8,000 and you presume a 2.5% minimum monthly payment and a 18% interest rate, it will take 360 calendar months (30 years) to pay your debt and you will pay the $8,000 plus $11,615.32 interest along the way.

You can have it either way. You can have got the Rule of 72 and chemical compound interest workings for you or against you. The rich take to have got their money workings for them. That's why they're rich. Too many other people take the antonym course.