How Long Does it Take to Double My Dollars?

 

Saving money is great, but watching your money grow is even more rewarding. The rate at which your cash grows depends on the vehicle used to save and invest. When you look at the typical savings account, we can see by the meager interest rates (if any) that our money won't do a lot of growing - at least not fast. 

So how long will it take to double my money? 

There's a simple trick to estimate how long a particular investment will grow based on the interest rate earned; it's called the Rule of 72. Basically, you take the number 72 and divide it by the interest rate (rate of return) that a particular investment would earn. Years to Double = 72/Interest Rate 

So if you have a $5,000 investment that will earn 6% per year, then using the Rule of 72, 72/6 tells you that it would take approximately 12 years to double the investment ($10,000). Of course, the higher the interest rate, the less time it would take to double the investment. 

Doubling the money will take so long if we think of savings accounts and the low interest rates. If I have $1,000 in a savings account earning 2% interest annually, how long would it take to double? 72 divided by 2 equals 36. That means it would take about 36 years for my $1,000 to double to $2,000. That's a small return for such a long wait, right? 

Savings accounts serve a fundamental purpose in our lives which is providing a safety net/emergency fund. It is doubtful to be the vehicle used to invest and make money off your money. 

How can the Rule of 72 help you?

As I mentioned, this is just a quick trick when doing some mental math and figuring out how long it may take to double some money. You may one day get a windfall gain and be looking for ways to invest it. If you have an idea of the growth you want to see and the investment options available, this quick rule may be helpful with deciding where you put your money. 

Managing Money Like a Boss is about building your financial knowledge. The more you know, the more you grow, and hopefully, the more your money grows too! Test out the Rule of 72!