Ever heard of the rule of 72 in school? Well, if you haven’t (like most people), then it’s because school doesn’t really take the time to teach you things that are valuable in terms of managing your finances & preparing for your future. Yes, they teach us math, science, history, English, and specific classes depending on our areas of interest, but have they taken the time to teach us about handling our own finances? No, they just tell us that if we get an education, we’d get more pay – the one thing pretty much everyone strives for (Read Rich Dad, Poor Dad). But for what? To live a comfortable life or worry-free life, right? I think that if school implemented ways of teaching students about money management & ways to invest for a better future, we’d all be better off today as a whole. Anyway, I somewhat digress…
Back to the subject, I thought I’d bring up the rule of 72 for those who are thinking of investing their money in vehicles that have fixed annual interest rates. The key thing to remember here is compound interest. If you take 72 and divide it by the interest rate that you are receiving, that number indicates the number of years it will take for your money to double. Thus, the more you put in while you’re young, the greater & quicker the return. Of course, the rule does become less precise as the interest rate becomes higher. See wikipedia for more information.
Today, I hear a lot more people @ younger ages investing & that’s great! But I feel that so many people still don’t understand that investments aren’t just meant for the older folks. Although the market goes up & down, in the LONG-TERM (if you look at yearly market charts side by side), it has been increasing. So if you’re going to invest in these types of vehicles, START EARLY. DON’T look @ the short-term because that’s where people make their mistakes. I bring up the market because certain investment vehicles don’t have fixed rates – they fluctuate. But in the long-term, the rule still applies.
Some people think they’re too poor to invest, but if you take away the junk food & impulse buy on items such as clothing & games, you’ll have plenty to put in – trust me.
Conclusion: Start investing while you’re young. Think LONG-Term NOT short-term.
2 comments:
that rule of 72 doesn't work for bigger numbers. what if you have a 72% return? That means you got 72% of your original investment back in a year... but according to that rule, 72/72 = 1 year to double investment. but it didn't.
that rule works only for smaller numbers... like shitty S&P returns.
"Of course, the rule does become less precise as the interest rate becomes higher. See wikipedia for more information." -- Are u reading my post or glancing @ it, buddy?
Post a Comment