Make The Rule Of 72 Work For You !
Once upon a time an Overseas Filipino Worker (OFW) started working abroad. At the age of 29 he had already saved a total of P 100,000.00 (Philippine peso)
In order to preserve his P 100,000.00, he decided to place it in the bank, since this is the only vehicle of investment that he knew about. The bank manager was delighted that the OFW opened an account with them. He even recommended that the money be placed in a time deposit account enabling the OFW to earn more than the ordinary savings account.
So he placed his money in the time deposit account and waited until he reached the age of 65. At the age of 65 he went back to the bank and asked to withdraw the P 100,000.00 in his time deposit account. Lo and behold his P100,000.00 already became P 400,000.00 because of the interest. So he withdrew his money from the bank and lived happily ever after.
So tell me, is this a "live happily ever after" story or not? Do you think this OFW has "wisely" handled his money? Did he really maximize his money's potential or did he just made others more richer ?
The rule of 72 gives us the answers to the above questions. This rule determines how many years it will take your money to double. The rule is expressed in this very simple equation: 72 / interest = No. of years it takes for your money to double
For this certain OFW, his money will double every 18 years. This is simply solved by applying the rule of 72 which is computed as follows: 72 divided 4 % per annum = 18 years. This means that if you add 18 years from the time he deposited his money, the P 100,000.00 will double to P 200,000.00 when he reaches the age of 47. After 18 more years when he reaches the age of 65, his money will already become P 400,000.00.
So what does the bank do with that P 100,000.00 ? Well, they take the OFW's money and invests it at mutual funds, the stock market, the money market, government bonds, corporate bonds and even consumer loans etc. averaging a 12 % return per annum. Using the Rule of 72, the OFW's P 100,000.00 will double every 6 years. (This is computed as follows: 72 divided by 12 % interest = 6 years)
After 36 years of waiting, the OFW claimed his P 100,000.00. You wouldn't be surprised why the bank manager willingly and gladly gave him back the P 100,000.00 plus the interest of P 300,000 amounting to a total of P 400,000.00. No sweat, they already made more or less a total of P 6,400,000.00 from the OFW's P 100,000.00 deposit. Now you tell me if that isn't hi-way robbery !
Think like the bank if you want to be more wealthy and a more better steward of your money ! The Rule of 72 works ! Make it work for you ! - 23208
In order to preserve his P 100,000.00, he decided to place it in the bank, since this is the only vehicle of investment that he knew about. The bank manager was delighted that the OFW opened an account with them. He even recommended that the money be placed in a time deposit account enabling the OFW to earn more than the ordinary savings account.
So he placed his money in the time deposit account and waited until he reached the age of 65. At the age of 65 he went back to the bank and asked to withdraw the P 100,000.00 in his time deposit account. Lo and behold his P100,000.00 already became P 400,000.00 because of the interest. So he withdrew his money from the bank and lived happily ever after.
So tell me, is this a "live happily ever after" story or not? Do you think this OFW has "wisely" handled his money? Did he really maximize his money's potential or did he just made others more richer ?
The rule of 72 gives us the answers to the above questions. This rule determines how many years it will take your money to double. The rule is expressed in this very simple equation: 72 / interest = No. of years it takes for your money to double
For this certain OFW, his money will double every 18 years. This is simply solved by applying the rule of 72 which is computed as follows: 72 divided 4 % per annum = 18 years. This means that if you add 18 years from the time he deposited his money, the P 100,000.00 will double to P 200,000.00 when he reaches the age of 47. After 18 more years when he reaches the age of 65, his money will already become P 400,000.00.
So what does the bank do with that P 100,000.00 ? Well, they take the OFW's money and invests it at mutual funds, the stock market, the money market, government bonds, corporate bonds and even consumer loans etc. averaging a 12 % return per annum. Using the Rule of 72, the OFW's P 100,000.00 will double every 6 years. (This is computed as follows: 72 divided by 12 % interest = 6 years)
After 36 years of waiting, the OFW claimed his P 100,000.00. You wouldn't be surprised why the bank manager willingly and gladly gave him back the P 100,000.00 plus the interest of P 300,000 amounting to a total of P 400,000.00. No sweat, they already made more or less a total of P 6,400,000.00 from the OFW's P 100,000.00 deposit. Now you tell me if that isn't hi-way robbery !
Think like the bank if you want to be more wealthy and a more better steward of your money ! The Rule of 72 works ! Make it work for you ! - 23208
About the Author:
Want to know more about investment strategies ? Visit the blog of Zigfred Diaz where he writes about several interesting topics such as investments, financial management, business, making financial online and Stock market investing
posted by X - Men @ 1:45 AM
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