Albert Einstein's Greatest Discovery: The "Rule of 72"

Compound interest is one of the most powerful financial tools that you can use toward your own and your business’s success. It is far more powerful than most people realize. It can be used for you, and it can be used against you. Fully understanding all the aspects of this powerful tool is essential for everyone in their personal and business finances. Albert Einstein has been credited for the discovery of compound interest.

“According to him this, not E=mc² was his greatest discovery, “Compound interest was not only man’s greatest invention, but it was also the most powerful force on Earth!” Those are compelling words coming from one of the most intelligent men of our time!”

(The Motley Fool).

The explanation of compound interest is a simple one. When you invest money, you earn interest on your capital. In the next year, you earn interest on your capital and the interest you earned the year before. Now this principle applies to any type of investment, debt repayment and the effects of the inflation rate on your buying power.

Compound interest is not commonly understood. Most feel that it is a lot of mathematical magic, and are unable to determine exactly how they can make their money work harder than they do. We simply determine how powerful this compound interest is by using the “Rule of 72”. By using this rule, you can fairly accurately determine how long it will take to double your money (or your debt) at a given interest rate. The rule is simple, divide the number 72 by the interest rate you are receiving (72/10=7.2), and you will find the number of years it will take to double your money. It is called the rule of 72 because at 10% interest, the money will double every 7.2 years.

You can also compute an interest rate if you are told that your money will double in “so-many” years. For example, if you needed to double your money in two years, and you would be able to figure that you would need to earn 36% interest (72/2 (years)=36%).

Make it work FOR you!

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