THE POWER OF 72

The Power of 72 is a fun and quick way to figure out how long it will take to double your money if you have it invested at a certain interest rate.

We know how important compound interest is if we want to create wealth. It's fun to see how quickly our money can grow if it's left alone.

Here's an example of how The Power of 72 works:

If you have money invested at a certain interest rate, and you would like to know how long it would take for it to double, this is a simple equation you can use:

72 divided by your interest rate = number of years for it to double

Let's do the math:

Let's do an example of how you can use The Power of 72 and show compound interest working at the same time.

Say your 10 year old child puts $1000.00 of savings in an investment paying 8% interest.

Nine years and that money will double to $2000.00.
He/she would be 19 years old.

Nine years and that money will double to $4000.00.
He/she would be 28 years old.

Nine years and that money will double to $8000.00.
He/she would be 37 years old.

Nine years and that money will double to $16,000.00.
He/she would be 46 years old.

Nine years and that money will double to $32,000.00.
He/she would be 55 years old.

Nine years and that money will double to $64,000.00.
He/she would be 64 years old.

This happens if you never touch the original $1000.00, and you never put another penny in! It's quite incredible if you think about it. You will end up making $63,000.00 in interest on a one thousand dollar investment!

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If you have set a goal of doubling your money every ten years (just an example), but need to know what interest rate you need to accomplish this, you can use the formula in a different way:

72 divided by number of years = the interest rate you will need

so....

72 divided by 10 years = 7.2% is the interest rate needed.

These are great formulas to help us figure out some financial goals with our children. It's a great way to involve them and it will help them understand and be patient when investing money for the long-term.