I used to be incredible at math. My Economics coursework in college was filled with so much Calculus that my dreams were filled with differentiation and derivatives rather than drunken divas. Isaac Newton used to text me frequently to see what I thought about his laws. But that was the old me. The new me is so reliant on my calculator I feel paralyzed and naked without it. Watching me on a calculator is like watching a teeny-bopper text her BFF, lol.

When I don’t have a calculator within reach, there are still a few calculations I manage to do in my head. Although extremely simple, the following rule will knock the pants off of any listener (excluding teeny-boppers and financial advisors).

**The Rule of 72**

One thing that makes investing so beautiful and credit cards so ugly is compound interest. I will have a later post devoted to compound interest, but for now just remember that compound interest is “interest on interest.” For one to calculate compound interest, one would need the formula for Future Value:

FV = P(1+r)^y

Instead of having to carry that Y in your head, try this:

The Rule of 72 says to find the number of years required to double your money at a given interest rate, you just divide the interest rate into 72. It’s amazingly accurate:

- 2% = 36 (actual 35 years)
- 3% = 24 (actual 23.45 years)
- 9% = 8 (actual 8.04 years)

The Rule of 72 is not as precise at higher interest rates. Thankfully, thanks to Ben Bernanke, we have nothing to worry about.Â The Rule of 72 works for tax-deferred investments with a fixed rate of return, compounded annually. If you want a more accurate (taxable investment) figure, try using the Rule of 108.

Little House says

That’s a much easier formula that the future value one. I should have used this in an algebra class I taught this summer. I just confused the poor kids with the FV formula!

retirebyforty says

Yeah, that FV formula is more math than I have seen in 15 years. đź™‚

Buck Inspire says

Neat rule. I need to dust off my economics and math books!

Anonymous says

It definitely comes in handy.

World of Finance says

Nice rule. đź™‚ I know how you feel about a calculator. Before taking the GMAT, exam required to apply for grad school, I definitely had to brush up on performing calculations in my head as calculators are NOT allowed during this test…

Anonymous says

I would be screwed.

Anonymous says

I’ve heard about the rule of 72 before, but never actually took the time to understand what it was. Great stuff and very useful.

Money Q&A says

Great explanation of the rule of thumb. I’m a little surprise by how many people didn’t know it before now.