The Rule of 72: The Ultimate Guide to Doubling Your Money
The Rule of 72 is a legendary shortcut in personal finance, investing, and economics. It instantly tells you how long it takes for your money to double at a given interest rate—no calculator required. But the Rule is much more than a party trick: it’s a window into the power of compound interest, a tool for smart decision-making, and a way to spot the impact of inflation and debt.
What is the Rule of 72?
The Rule of 72 is a simple formula: Years to Double = 72 ÷ Annual Rate (%)
If you invest at 6% interest, your money doubles in about 12 years (72 ÷ 6 = 12). At 9%, it doubles in 8 years (72 ÷ 9 = 8).
Why Does It Work?
The Rule of 72 is based on the mathematics of compound interest and natural logarithms. For rates between 6% and 10%, it’s remarkably accurate (within a few months). The magic comes from the logarithmic relationship between growth rate and doubling time.
Step-by-Step Examples
You invest $5,000 at 8% annual interest.
72 ÷ 8 = 9 years to double to $10,000.
If inflation is 4%, prices will double in 72 ÷ 4 = 18 years.
That $2 coffee will cost $4 in 18 years.
Credit card debt at 18% interest? Your balance doubles in 72 ÷ 18 = 4 years if unpaid!
Quick Reference Table
| Rate (%) | Years to Double |
|---|---|
| 3 | 24 |
| 6 | 12 |
| 8 | 9 |
| 10 | 7.2 |
| 12 | 6 |
| 18 | 4 |
Practical Uses
- Investing: Estimate how fast your savings or investments will double.
- Retirement Planning: See how early investing pays off.
- Inflation: Understand how inflation erodes purchasing power.
- Debt: See how high-interest debt can spiral out of control.
Accuracy, Limitations, and Alternatives
- Works best for rates between 6% and 10%. For very high or low rates, use the Rule of 69.3 for more precision (from natural log math).
- Assumes annual compounding. For monthly or daily, results are close but not exact.
- It’s an estimate—a quick check, not a substitute for a full calculation.
Frequently Asked Questions
- Why 72? 72 is divisible by many numbers (2, 3, 4, 6, 8, 9, 12), making mental math easy.
- Does it work for non-annual compounding? It’s close, but exact doubling time is slightly less for more frequent compounding.
- Can I use it for losses? Yes! If your investment loses 6% per year, it halves in about 12 years.