Formula 72: Know in how much time your money will double
When we invest money, the first curiosity that we have is to know how much time it will take to get our money double. Though the growth of your money depends on a lot of factors, including the type of investment, whether it is market-linked or fixed, compounding, interest rates, etc., there is a formula to gauge the exact time. It is known as Formula 72. The formula also tells that in how much time the value of your money will become half after adjusting to the annual inflation rate.
Formula 72: We invest money mainly for two reasons: we want to see it grow and we want to achieve our financial goals. But when we make an investment, the first thing that comes to mind is how much time it will take to get double. Investment growth depends on a lot of factors.
Some of which are: whether you have invested money in fixed or market-linked resources; the prevailing interest rate; the share market's rise and fall; etc.
Returns may be guaranteed or non-guaranteed, but curiosity about the duration of growth never dies down.
In this write-up, we will tell you how you can apply Formula 72 to know the duration of your income growth.
What is Formula 72?
You have to divide the number 72 by the interest you get on your investment, and you will get the number.
E.g., if you have invested in a guaranteed return scheme like a FD of Rs 5 lakh in a bank, where you get the interest rate of 7.25 per cent, in such a situation, if you divide the number 72 by 7.25, you will get 9.93.
This means that it will take 9.93 years for your money to double, i.e., about 119 months.
In how much time will you money be reduced to half?
When it comes to understanding how long it will take for the value of your money to be halved, you can also use formula number 72.
However, to understand this, you need to know the average inflation rate.
Suppose the current inflation rate is 6 per cent, then you have to divide 72 by 6 to understand the value of your money.
In this way, the figure comes to 12. That means the value of your money will halve in 12 years.
This figure of the decline in the value of your money will help you a lot in retirement planning.
When you do retirement planning, you will be able to understand what the value of your money will be when you retire.
With this, you can calculate how much money you should invest every year, so that you do not face problems after retirement.
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