The rule of 72 is a rule that can answer you the question: How many years will my money need to double for a given interest rate?

It closes the gap between an interest rate and what it means in real life.

Here is the rule of 72:

`t = 72 / Interest Rate in percent`

So how long would your money need to double with an interest rate of 7%? (Average historical inflation-adjusted stock market return)

`72 / 7 = 10 years`

## Double your money within 10 years?

Or quadruple it within 20 years. That’s what’s in for you. That’s why, even 10 or 15% of your disposable income saved can make a huge difference over time.

This is the sole reason early retirement is possible. You just have to save a lot of money and invest it in stocks. Or save only a few bucks and let them sit a lot longer.

## Or pay double within 5?

Compounding can also work against you.

Say you have a credit card and it charges a 15% interest rate. How fast will the amount you owe be doubled?

`72 / 15 = 5 years`

This is insanity as you see. Even if you are required to pay off some of the principal every month.

## How do you apply the rule?

So every time you hear an interest rate I want you to apply the rule. It will translate it into something a little more meaningful for you.

Use it to help you with financial decisions. Choose wisely.