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.


     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. 


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