Source: Better Explained
Published: January 2022
The Rule of 72
The Rule of 72 is a great mental math shortcut to estimate the effect of any growth rate, from quick financial calculations to population estimates.
Here’s the formula: Years to double = 72 / Interest Rate
This formula is useful for financial estimates and understanding the nature of compound interest.
Examples:
At 6% interest, your money takes 72/6 or 12 years to double.
To double your money in 10 years, get an interest rate of 72/10 or 7.2%.
If your country’s GDP grows at 3% a year, the economy doubles in 72/3 or 24 years.
The rule of 72 shows why a “small” 1% difference in inflation or GDP expansion has a huge effect on forecasting models.
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