# INFLATION & INVESTING

### THE RULE OF 72

Even if the Theory of Relativity wasn’t enough by the great physician, Albert Einstein, he also is credited for the Rule of 72. This ruling declares a simple mathematical formula that states how long an investment would take to double one’s money.

Yes, DOUBLE your investment. Take, for instance, a child inherited $500 from his grandparents and put into a bank Certificate of Deposit earning 1%. It would take 72 years for his investment to double.

MATH FORMULA:

72 years / 1% interest = 72 years

72 years / 3% interest = 24 years

72 years / 6% interest = 12 years

72 years / 9% interest = 8 years

The formulas above provide a clear insight on why seeking a higher interest rate when investing works in your favor, but a higher interest rate when paying off debt is terrible. Although the higher the interest rate, the riskier an investment is going to be. However, I want you to consider this.

Ever thought about how banks make their money? Yes, they loan it out, but lets put things into perspective. You put $1,000 into a bank, and in return, you may earn 0.01% on this amount sitting in your checking account. How thoughtful of the bank, you think. The bank then will either loan this out for the going interest (let's say 4%).

The bank already made a nice gain from you. But what if banks had loaned money to you in the form of plastic? Yes, credit cards. They generously pay you 0.01% while charging you from 12-23% or more. With the rule of 72, the financial institutions are raking in the dough very quickly. Consider this the next time you want to charge something onto your credit card.