When it comes to managing your money and growing your finances, your main goal is most likely to be achieving financial freedom. One of the best ways to accelerate this process is to make your money work for you and multiply itself without you having to put in any effort.
When you’re trying to calculate how well an investment will pay off, there are some simple tricks you can use. Luckily, all the skills needed for doing this have been covered in school, and some basic 4th-grade math will help you determine how fast you’ll be multiplying your money.
Check out these two simple rules to find out how much you’ll be making from interest, and how long it will take you to double and triple your money.
By using the Rule of 72, you’ll be able to determine how fast you will double your money. All you need for this is to know your interest rate and have a calculator at hand.
Bear in mind that the Rule of 72 is just a rule of thumb and is not a law set in stone that guarantees you a certain return on your savings. The rule doesn’t take into account any significant dents made in your returns, for example, taxes and any administration fees, or if any of your interest is spend on other items.
To calculate this, divide 72 by the interest rate you’re earning to give you the number of years it will take for your money to double.
For example, if your money is earning a 10 percent interest rate, it will take you 7.2 years to double it; 72 divided by 10 is 7.2.
If the interest rate is 15 percent, your money will double in just 4.8 years.
However, if your money is earning a measly 1 percent interest, it will take you 72 years to double it.
While this is a useful guide to calculate exactly how long it will take for your hard-earned money to double, it’s up to you as to how you use this information. When we’re dealing with large sums of money, it’s easy to overlook just how significant a single percentage point can be. It may seem like the difference between 6 and 7 percent is almost insignificant, but if you calculate how long it will take you to double your money, there is indeed a huge difference between doubling it in 10.3 years, or in 12 years.
The Rule of 72 assumes that your money is compounding annually and that your interest is getting added to the money you started with once a year so that the entire amount is being reinvested.
If doubling your interest just isn’t enough for you, calculating how many years it will take to triple it might be more up your street.
Just like the Rule of 72, the Rule of 115 calculates just how long it will take for you to triple your money.
Simply divide your interest rate by 115.
If your money earns an interest rate of 10 percent, it will take you 11.5 years to triple it; 115 divided by 10 equals 11.5.
It’s important to remember that tripling your money is significantly easier and faster than doubling it. If your money is earning you 5 percent, it will take 14.4 years to double it, but only an additional 8.6 years to triple it.
This again assumes that your money is compounding each year, your interest adding to the total sum of money you have.
Albert Einstein once said: “compound interest is the 8th wonder of the world. He who understands it earns it, he who doesn’t, pays it.”
So how is it possible to double and triple your money by just leaving it and without putting in any effort? It’s all thanks to compound interest. The more interest your money earns, the more your money will keep on earning for you.
The hard part is leaving your money where it is and not spending your interest on clothes, games or other things. Reinvesting your interest each year should be as simple as leaving it in your account; as long as you’re not getting checks or payments from your investments, your interest is most likely compounding by itself.
To make sure your interest is being reinvested, visit the page where you are buying your funds. Check the box that says something along the lines of “reinvest interest and dividends.” Forget about it. Wait 11.5 years. Your money will have tripled if you have an interest rate of 10 percent.
It really is that easy.