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The Rule of 72, 114, and 144
By JLP | May 14, 2007
Most people are familiar with the Rule of 72, the simple formula that can be used to estimate how long it takes to double your money based a certain expected interest rate. For example, you expect to get an 8% rate of return on your money. At that rate, how long will it take to double your money?
To calculate this, simply divide 72 by 8 to get 9 years.
How accurate is this formula? As the graphic shows below, it’s fairly accurate for estimating:
This formula is fine for estimating how long it takes to double your money. But what if you want to triple your money?
Enter the Rule of 114
To estimate how long it takes to triple your money, divide 114 by your expected interest rate (or rate of return). Using the 8% return figure from the first example, the formula would look like this:
Here’s a look at how accurate this little formula is:
Not too bad. The higher the expected rate of return, the less accurate the formula. However, this is also true of the Rule of 72.
Now for the Rule of 144
To estimate how long it will take to quadruple your money, you can use the number 144. Simply follow the steps in the above example but substitue 144 for 114. Again, it is a good estimate:
No, they aren’t perfect but neither is the Rule of 72. However, these formulas will give you a good estimate of how long it takes double, triple or quadruple your money.
Isn’t math fun?
FOLLOW UP: Where does the Rule of 72 come from?
Topics: Financial Math Basics |
