How to Double Your Money

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  • #2483

    Recently I was having a conversation with my daughter and she mentioned to me that she wanted her savings to double. So I explained to her the Rule of 72. This was something my dad shared with me when I was young, and I have referred to it often.

    The Rule of 72 is a simplified mathematical version of how to determine how long it will take to double your money. You take the amount of interest that you will be earning and divide 72 by that number. The result is the number of years it will take to double your money.

    Meaning, if I can earn 8% interest then you divide 72 by 8 (72 ÷ 8) and you will find out that it will take about nine years to double your money. This takes into account that you are using an annual compound interest rate, and this shortcut works best for interest rates between 6% and 10%.

    I have always been a bit fascinated by this “trick”. Since the number 72 is divisible by 2, 3, 4, 6, 8, 9, and 12, it makes it easy to get a reasonable answer to how long it will take to double your money.

    #2485

    You were good at math as a kid, weren’t you, Stacey? I could never remember how this calculation works.

    Unfortunately, the trickier thing yet is to find somewhere to get 8% interest. The most recent estimates I’m seeing for projected market returns are 5%, and of course most people aren’t getting more than 1% on cash/bonds. Meaning we have to save a lot more for a lot longer. It explains why my portfolio hasn’t achieved that skyrocketing estimate I got from a broker 10 years ago. Is it just me, or is it harder than ever to build financial security?

    #2493

    Carla, you are right! If we look at the rates of the traditional savings account we will probably never double our money on interest alone. Any little fee would eat it right up! This frustrates me with our emergency fund. While it needs to stay liquid it shouldn’t also just sit doing nothing. Any thoughts on this? Maybe laddering CDs or even an income fund? Laddering CDs (with some not tied up at all) would allow for gradual withdraw should an emergency arrive. Income funds are subject to market changes but pay more. Maybe a combination of both?

    My dad also taught me the adage, money makes money. But my emergency fund has yet to find a paying job. 🙂

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