The power of compounding for your money explained with three simple rules

The power of compounding for your money explained with three simple rules

I am sure that most of you know what a compound interest is. Once you accrue interest on your principal, your amount that is accrued with interest will be our new principal.

This snowballs the returns and gives you much more than you know. Estimating the time for your returns are sometimes not easy for non-math people.

Though a simple A=P[(1+r)^t] formula can be given, not many people will take the time to use it and substitute the values in here.

Hence we will see three simple divisible rules that can help you understand how the compounding works.

The rule of 72 (Double your money):

Ever wondered how much time it will take to double your money when you are investing? Well this rule covers it easily.

Once you know the return percentage you are getting for your investment, simple divide 72 by that number.

Right now most interest rates are around 7%. Therefore to know when your investment will be doubled, divide 72 by 7

72/7 = 10 years 3 months approximately.

Note that these rules are an approximation and not exact.

The rule of 114 (Triple your money):

What if you wanted to triple your investment? Simply divide 114 by the expected rate of return for your investment.

117/7 = 16 years 3 months approximately.

The rule of 144 (Quadruple your money):

This calculation holds good for when you want to quadruple your investments. Simply divide the number 144 by your expected rate of return or your investment.

144//7 = 20 years 6 months approximately.

Whenever you invest, you need to know when your returns will bring more than what you invested. Given the current pandemic situation, the quadruple rule may not hold good but the other two will certainly help you making a timely decision.