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Rule of Thumb

Rule of  "72 "  

  
If you divide the number 72 by the rate of interest, you get to know the number of years it will take for you to double the money 72:  is sort of a magic number of personal finance, a.k.a known  as the rule of 72 in  personal finance parlance. All you  need to do is a quick calculation (mentally if you know  fifth grade math tables) and you can verify, if the cheeky  agent is giving you hogwash. 
 
 *Years:* If  you divide the number 72 by the rate of interest, you get to know the number of years it will take for you to double the > money. For instance, if the rate of interest is 9%, simply  divide the number 72 by 9% and the answer is eight. This is  the number of years it will take to double your money if you  invest it at 9% rate of interest.

  
 *Interest:**  *This rule works in reverse order as well. Lets say, you  know the number of years you want to double your money in  and want to know the minimum rate of interest which you need> to achieve that goal. So let's say, you have Rs 2.5 lakh  today and need to fund your son's college education with Rs 5 lakh in five years. Just divide the number 72 by 5 and  the answer is 14.41%. This shows that you will need to > invest your money in an instrument where you earn at least  14.4% as rate of interest, if you want to double the funds  in five years.
  
 *Inflation:* This rule also helps you understand a thing or two about inflation.  It helps you calculate the amount of time it will take  for inflation to make the real value of money half. So, lets say that the average inflation is 7%.  When you divide 72 by 7, the answer is 10.28. So, if you have Rs 1 lakh in your kitty today, it would take around 10.28 year for the value of the money to be halved.  Keep in mind, that this  is a rule of thumb and can be used to get rough results on  money related calculations. Now that you know a little more
 about the number 72 and its rule, use it while dealing with  your agents for quick verification of facts.

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