If you’re like me when you first started all this investing malarky, you were confused as all hell.
There are a lot of resources out there but it still isn’t made at all easy. When you first try and learn any of this stuff, whether it’s via a youtube video, a thread on reddit or god forbid, a professional investor, they’re going to throw all sorts of acronyms at you from APR, APY to ISA, IRA, ETF, SPY!
This is on purpose, money is power and those who have it would like to keep it for themselves and if they can’t, they’ll at least make sure it’s so complicated you have a hard time getting started and preferably pay one of them to do it for you! This is backed up by the fact that we aren’t taught any of these skills in school – why exactly arent we taught how mortgages and the stock market work as compared to how many wives some old guy had 500 years ago?
So, what is the rule of 72? Well basically it’s a method you can use quickly to instantly find out just how much money an investment will make you (Roughly) – now there are of course tools and calculators out there but you don’t want to whip them out everytime you learn about a new investment, especially when you’re just starting out.
This rule works for any kind of compounding interest calculation, so basically once you know the type of investment and what interest rate it is, you’ll quickly be able to find out how long it would take at that rate to double your money and you can reach your goal of Financial freedom as soon as possible
E.g. At 10% interested rate, you’re looking at 72/10 = 7.2 so just over 7 years till you double your money.
You can also use this to check how much those credit card and auto loans are screwing you!
If you’re paying 20% APR on a credit card, whatever debt you dont pay will double in just over 3.5 years!