I must have slept through finance class in business school, because I never remember us talking about the rule of 72. Yet, here it is on wikipedia: RuleOf72. I did get a chance in business school, however, to learn and memorize lots of formulas that have long since been forgotten. A lot of them probably would come in handy when I am looking at corporate numbers for my investments, but maybe not. I wish my teachers would have taught us more about the rule of 72.

Why? It’s simple. Really it is just simple. I love things that are super simple for me to understand, but express a lot. This concept does just that. It goes like this:

if you were to invest $100 with compounding interest at a rate of 9% per year, the rule of 72 says you should divide 72 by the compounding interest rate of 9 which gives you 8 years required for the investment to be worth double what it is. The math is easy enough and it allows me to do it in my head. An exact calculation with an abacus or calculator shows that it would be 8.0432.

So to me, everything with investing my money boils down to increasing either a.) your investment, or b.) that interest rate per year. Nothing else matters.

I know, it isn’t easy to figure out how to maximize that interest rate you are receiving per year, but at least I know what the ultimate goal is. People spend a lot of time getting lost in the details. A simple concept like this helps make it easy for you to keep your eyes on the prize and wonder aloud if you are thinking about something that doesn’t really make sense to worry about.