The Rule of 72: What is it?

I learned this when I was 25 years old.

This rule was never taught in elementary, or even highschool math. Yet, this very useful tool is so easy to understand.

Simply put, the Rule of 72 should determine how long it would take for an investment to double its amount given a fixed annual interest .

For example, Php 100 invested at 10% would take 7.2 years to become Php200. Easy, right?

Here's the Formula: No. of years = rate / 72.

So now, how do we use this rule?

Here, look. Let's say you put that extra hundred in your pocket in a regular savings account. If you let it sit there and forget about it, will take you approximately 72 years for your hundred to turn into Php200! (I'm assuming savings gives us 1% rate of return.) That's a long, long, long, time.

But here's what I learned in Investopedia.com. Apparently, the Rule of 72 is only fairly accurate for low rates of return. As the rate gets higher, the rule gets less precise.

But then again, we can always use the future value formula if we want accuracy.