Do you know the Rule of 72?

A mathematician would give you a chalkboard full of equations, but since they’ve already done the hard work (thanks guys!), let’s just go basic. Basically, the Rule of 72 is a shortcut formula that relates to compound interest, and determines how long it will take for your money (or any investment) to double, depending on the rate of growth. Try it out today. Take the current interest rate your bank is offering on your savings account. Pretend you have $1,000 in your account. Now, divide 72 by the interest rate at your bank. The answer you get is the number of years it will take for your $1,000 to become $2,000. (See info-pic.) Understanding the rule of 72 is also understanding compound interest, a phenomenon that predates Einstein. Compound interest, however, didn’t become popular until he reportedly called it “the eighth wonder of the world”, and stated “he who knows it, earns it…he who doesn’t, pay for it”. Even Ben Franklin has been quoted, describing it as “money makes money. And the money that money makes, makes money”. Heck, even the SSA suggests maximizing your savings through the power of compound interest and by starting early. Wise idea SSA, because who could live off that 40% of “current income” that you would be giving?

Know this – just like you use it to determine your money doubling time, so do banks and other financial institutions. Let’s break that down using the bank for example…what happens when you put your money in a bank, does it sit in a vault until you’re ready for it? No! The bank loans it out. And, depending on the state of the borrower’s credit, charges a certain interest rate. The bank divides 72 by that interest rate to figure the doubling time on that money. Remaining uninterrupted, over time the growth is, well phenomenal! Take a look at the info-pic; there’s a huge difference in how the money doubles over the same time period. A financial institution’s potential at 12% (what the bank gets) is $64,000 (doubling every 6 years), while yours at 2% (what the bank gives, if you have a generous bank) is $2,000 (doubling in 36 years). Hey, but what if the bank loans that out to multiple people? Yeah, maaaad money, making compound interest The Boss!

From this example, the bank clearly comes out the winner…or the richer! We know they’re in business to make money, but did it have to be so lopsided? Well, it would if we didn’t know better. Repeat after me – WE. KNOW. BETTER. What if I could show you how to effectively and efficiently think like a banker and to some extent treat your money the way a bank would? Banking on your own money is you banking on you! This is commonly known as becoming your own banker, personal banking strategy, self banking system, and so on. It’s simple – make compound interest like a bank would and make money like a bank would. Well, true, on an average day you won’t have near as much money as a bank does, but nevertheless, things can start to look a lot brighter for you financially.

Here’s another idea to contemplate – never, ever, ever, let anyone tell you that retiring in a lower tax bracket is a good thing. No, it’s a broke thing! Unless, of course, you ARE rich and have a knowledgeable financial advisor.

Superpower your money! Know the rules. Play to win.

Live prosperously,
Judith Smith