What is the rule of 72? How is it related to Financial Planning?

The rule of 72 dictates that to be able to compute the approximate number of years for your money to double, simply divide 72 by the interest rate.

72 / interest rate = approximate no. of years it will take for your money to double.

Let’s take the example of having a Savings Account in any commercial bank with the current prevailing interest rate of 1%.

rule of 72Say I put a 100k in Metrobank under savings account which gives 1% pa interest. How many years will it take for my money to become 200k? Using the rule of 72, we use

72 / 1% = 72 years for my money to double

So if I’m 29 years old, by the time I reach 101 years old, my money will become approximately P200,000.00. By that time, most likely, I’ll be 6 feet under.

Likewise, if I’ll invest the same money in a mutual fund that gives an average return of 12%, my money will double when I’m 35 years old or in a period of 6 years.

Rate of Return Rule of 72 Actual # of Years Difference (#) of Years
2% 36.0 35 1.0
3% 24.0 23.45 0.6
5% 14.4 14.21 0.2
7% 10.3 10.24 0.0
9% 8.0 8.04 0.0
12% 6.0 6.12 0.1
25% 2.9 3.11 0.2
50% 1.4 1.71 0.3
72% 1.0 1.28 0.3
100% 0.7 1 0.3

Interesting, isn’t it? The power of time and money.

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Garry Zaldy de Castro is an advocate, Financial Advisor, Certified Investment Solicitor (Mutual Fund Representative), blogger, IT practitioner, husband to Aileen and a dad to Jacob and JohnD. He started Financial Planning Philippines in 2008 just to share his financial learning to friends, relatives and anyone who wishes to be financially independent.

4 comments

  1. Good day sir. Im an OFW can you help me to choose a better mutual fund with a reputable track record? becuase Im planning to invest a small amount and I dont want to loss my hard earn money. Salamat… Mabuhay po kayo…

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