1. The Rule of 72 The most important and simple rule to financial success.

2. Tools For You For Financial Success
Pay Yourself First
saving money immediately from the money you receive
main purpose is to get a habit of saving formed
Rule
spend 70% of your money on daily expenses
save 20% for emergency/opportunities
invest 10% long-term

3. Tools For You For Financial Success
How long will it take for $5000 to double at 9% interest?
8 years
The answers can be easily discovered by knowing the Rule of 72
The time it will take an investment (or debt) to double in value at a given interest rate using compounding interest.
Known as the most important and simple rule to financial success.
to determine about how many years it will take to double your money:
years to double=72/interest rate
to determine the interest rate that will double your money in a set number of years:
interest rate=72/years to double

4. What the “Rule of 72” can determine
How many years it will take an investment to double at a given interest rate using compounding interest.
How long it will take debt to double if no payments are made.
The interest rate an investment must earn to double within a specific time period.
How many times money (or debt) will double in a specific time period.

5. Things to Know about the “Rule of 72”
Is only an approximation
The interest rate must remain constant
The equation does not allow for additional payments to be made to the original amount
Interest earned is reinvested

6. Doug’s Certificate of Deposit
Doug invested $2,500 into a Certificate of Deposit earning a 6.5% interest rate. How long will it take Doug’s investment to double?
Invested $2,500
Interest Rate is 6.5% 72 =
11 years to double investment
6.5%

7. The average stock market return
Another Example
The average stock market return
since 1926 has been 11% 72 =
6.5 years to double investment
11%
Therefore, every 6.5 years an individual’s investment in the stock market has doubled

8. Jessica’s Credit Card Debt
Jessica has a $2,200 balance on her credit card with an 18% interest rate. If Jessica chooses to not make any payments and does not receive late charges, how long will it take for her balance to double?
$2,200 balance on credit card
18% interest rate
This equation assumes that no additional payments or late fees were charged
Generally minimum payments on credit cards are 2% of the account balance each month 72 =
4 years to double debt
18%

9. Rhonda’s Treasury Note
Rhonda is 22 years old and would like to invest $2,500 into a U.S. Treasury Note earning 7.5% interest. How many times will Rhonda’s investment double before she withdraws it at age 70?
Age
Investment 22
$2,500
31.6
$5,000
41.2
$10,000
50.8
$20,000
60.4
$40,000 70
$80,000 72 =
9.6 years
7.5%
to double investment

10. Another Example $500 invested at age 18 7% interest
How many times will investment double before age 65?
Age
Investment 18
$500
28.2
$1,000
38.4
$2,000
48.6
$4,000
58.8
$8,000 69
$16,000 72 =
10.2 years 7%
to double investment

11. Conclusion The Rule of 72 can tell a person:
How many years it will take an investment to double at a given interest rate using compounding interest;
How long it will take debt to double if no payments are made;
The interest rate an investment must earn to double within a specific time period;
How many times money (or debt) will double in a specific time period

12. Conclusion continued
Things individuals must remember about the Rule of 72 include:
Is only an approximation
The interest rate must remain constant
The equation does not allow for additional payments to be made to the original amount
Interest earned is reinvested

13. Assignment
Rule of 72 worksheet—fefe curriculum