Financial Literacy

Math is one of the most important subjects in school, but I do think that focus on finance and budgeting will probably equip students more in battling their way through life than geomerty and trigonometry. I mean, let’s face it, people encounter all sorts of problems in their everyday life but the most important problem they face is determining how they can earn extra income for their family; not figuring out the exact dimensions of their water container. To all the schools out there, can you please consider adding a new subject as important as finance and budgeting?

Anyway, the real purpose of this post is to share with you the rule of 72. This method is invented by Albert Einstein and is probably one of the most important facts you’ll ever encounter in your life. The rule of 72 simply teaches us that if you divide the number 72 by the rate of interest, will yield the number of years it will take to double your money. It is used in compounding interest rather than simple interest calculations.

For example, if you divide 72 by 8 percent interest in an investment, your money will double in 9 years, regardless of the amount of your money.

Why am I sharing this? To give you a wakeup call. Saving in banks can only give you at most, 4% interest and they would probably require you to save millions just to get that rate. And if we are being strict here, we would need to include the inflation rate of 3% to 5% into the picture, which will give you 0 to 1 percent interest. Using this scenario and applying the rule of 72, in how many years can you double your money?