- Date : 05/02/2023
- Read: 4 mins
Are you unhappy with your salary and want more? Rest assured! We have you covered. Here is how the rule of 72 works.
Nowadays, earning from a single source isn't enough to meet individual needs. Most people go for investments to grow their income, however, do not get satisfactory results due to a lack of knowledge. The following points will help you understand how to double your money by investing correctly:
- What compounding is
- How compounding works
- What Rule 72 is
- How Rule 72 works
- What Rule 114 is
- How Rule 114 works
With the correct knowledge and some experience, you can master the art of investing.
Read: Responsible Investing
What Is The Power Of Compounding?
Compounding is the practice of increasing the value of an investment caused due to the interest earned on the principal amount along with the accumulated interest. In a simple sense, this method adds the profit earned back to the principal and then reinvests the entire amount. Compounding is a commonly used tool for growing money. The growth of wealth exponentially is the power of compounding.
Investing with simple interest means earning interest only on the principal amount. On the other hand, investing with compound interest means earning interest on the principal amount and the accumulated interest. The value of time makes compounding such a powerful tool.
Read More: Invest With Confidence
How Does The Rule 72 Work?
The rule of 72 is away of calculating how much time an investment may take to double. It is also used for finding the rate of interest at which the investment can double in the desired time. This is the formula used for calculating:
Doubling Time (Number of Years) = 72/Annual Rate of Interest
Rate of Interest (Annual) = 72/Desired Time
1) To find the time in which the investment will double at an interest of 15% per annum:
Doubling Time (Number of Years) = 72/15
= 4.8 years
2) To find the rate of interest per annum at which the investment will double in 6 years
Rate of Interest = 72/6
= 12% per annum
How Does The Rule 114 Work?
The rule of 114 is a simple way of estimating how long an investment may take to triple. It is also used for finding the rate of interest at which the investment can triple in the desired time. This is the formula used for calculating:
Tripling Time (Number of Years) = 114/Annual Rate of Interest
Rate of Interest (Annual) = 114/Desired Time
1) To find the time in which the investment will triple at an interest of 15% per annum:
Tripling Time (Number of Years) = 114/15
= 7.6 years
2) To find the rate of interest per annum at which the investment will triple in 6 years
Rate of Interest = 114/6
= 19% per annum
Compounding is an easy, effortless, and effective method of doubling or tripling your money. Investing even a small amount of 5000 rupees monthly, with compound interest can help you earn an amount double or triple the original amount within a few years.
So, what are you waiting for? Go ahead and get your investments done right away.