R * T = 72

The Rule of 72 is a formula that investors often use to estimate the amount of time required to double the value of an investment. This formula consists of two variables and one constant, as follows:

The variable R (representing the rate of return or interest)

The variable T (which is the variable for time)

The constant 72

The premise of the formula is that if you know either one of the two variables, you can use simple algebra and solve for the missing variable, indicating either how long it will take for an investment to double, or what rate of return (or interest) one must earn in a given amount of time to double the investment. For example: If a dollar amount of $1000 grows to $2000 in ten years, you see that the investment has doubled in value. Now, lets use the Rule of 72 Formula to evaluate:

rate * .

Plug in 10 years as the time variable, and the formula becomes...

Rate * 10 . Thus, we can solve for the rate: R = (72 / 10 years) ... or 7.2% !

Therefore, in order for an investment of $10,000 to double in value to $2,000 in a 10 year time frame, the investor must earn 7.2% return (or interest as the case may be) on the investment on an annual basis.

Give an example of a purchase, an investment or another matter in your personal financial life when this formula would have been a useful Financial Planning tool to help you to prepare for the event. If no such event has occurred in your past life, then think if an event that will occur in the future for which you must plan, and accumulate a lump sum of money in order to make the event a success.