Get Wealthy With the Rule of 72
When it comes time to retire how many people would like to
have a nest egg that is 2 or 3 or even 4 times larger than
what they have? With an answer so obvious allow me to
explain how you can make it happen for yourself. First we'll explain the Rule of 72. If you divide the
number 72 by the rate of return on your investments the
answer is the number of years it will take to double your
money. If you are getting 7% annually then 72 divided by 7
equals a little over 10 so it takes 10 years to double. A
9% return divided into 72 gives us an 8-year time span to
double. A 10% return needs only 7 years to double. Now what return can reasonably be expected in our real
world? Over the last 100 years or so the United States stock
market has returned 10 to 11% per year on average, depending
whose figures one reads. We'll use the figure 10%. Suppose at age 37 you start saving for retirement. We
choose a reasonable sum of 110 dollars a month. In 7 years
you notice that you have accumulated 13,200 dollars. Another
7 years go by and you see that you have nearly $40,000. At
the end of 21 years you have $93,000. By age 65 you notice
that 28 years have gone by and you have $200,000 dollars.
The rate of return kept steadily increasing. Those of you
with some mathematical leanings will recognize this as an
exponential rate and also as compound interest. This
website has a good calculator:
http://www.tcalc.com/tvwww.dll?Save Also notice that 28 represents four 7-year spans, time for
the first dollars to double four times. Observe that during
the first 7-year period you accumulated $13,000, during the
2nd 7-year period $27,000, during the 3rd 7-year period
$43,000 and during the 4th period $107,000. During the 4th
period you grew eight times as much as in the first period.
All without changing the amount saved, $110 per month. You think to yourself "I wish I could have twice as
much". You may have figured out where this is going. Just
START 7 YEARS EARLIER. Now at the end of 35 years you have
$414,000, just for starting sooner. And if you start another
7 years earlier, imagine, $846,000. You accumulate $214,000
during the fifth 7-year period and $432,000 during the sixth
7-year period. Sixteen times and thirty-two times the amount
in the first 7-year period. All for the same 110 dollars a
month! Yes, I know. This would require beginning saving at age
23, a very difficult thing to do. I also realize that those
people with marginal incomes just don't have money to save
and also that younger people usual have lower earnings power
and incomes. I'm trying to make the point that to whatever
extent you can follow this start-early concept it will pay
off handsomely by the time you reach retirement. Albert Einstein wrote that he believed the most marvelous
thing in the universe was compound interest. You can put it
to work and double or triple your retirement savings. Save
as much as you can, save regularly but most of all start as
EARLY as possible. Play music like you always wanted. Gain the knowledge
you need to cut out most of the drudgery of endless
practice. Dr. Moloney is a retired Family Practitioner with
a lifelong interest in music and teaching.
Empower yourself to take charge of your learning by
studying his E-book. http://www.musicsimplified.com/
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Comment by Frank O'Donnell
