Make The Rule Of 72 Work For You !

An Overseas Filipino Worker (OFW) started to work abroad. Having worked for several years there at the age of 29 had a total savings of P 100,000.00 (Philippine peso)

Since the only investment vehicle he knew about was putting his money at the bank he went to the bank and deposited his P 100,000.00. The bank manager gladly accepted the money and even recommended that he put it at a time deposit account so that it would yield a higher interest rate at 4 % per annum.

As suggested by the bank manager, he placed his money in the time deposit account and didn’t touch it until he reached the age of 65. Since he is retiring from his job, he went back to the bank to withdraw the P 100,000.00 in his time deposit account. To his amazement his P100,000.00 had already become P 400,000.00. Because he wanted to enjoy his life, he withdrew all his money and lived happily ever after.

Do you think this is a “live happily ever after”? Has this OFW “wisely” handled his money? Are you sure he is maximizing the full potential of his money or has somebody become more richer because of his ignorance ?

To fully understand this, take note of the Rule of 72. In order to know how many years it takes for your money to double you only need to follow this rule which is simply stated as follows: 72 / interest = No. of years it takes for your money to double

For this certain OFW, his money will double every 18 years. This is simply solved by applying the rule of 72 which is computed as follows: 72 divided 4 % per annum = 18 years. This means that if you add 18 years from the time he deposited his money, the P 100,000.00 will double to P 200,000.00 when he reaches the age of 47. After 18 more years when he reaches the age of 65, his money will already become P 400,000.00.

The bank on the other hand takes that P 100,000.00 and invests it at mutual funds, the stock market, the money market, government bonds, corporate bonds etc. averaging a 12 % return on the P 100,000.00 that the OFW placed under time deposit. Under the rule of 72, that same amount of money will double every 6 years. (72 divided by 12 % interest = 6 years)

After 36 years of waiting, the OFW claimed his P 100,000.00. You wouldn’t be surprised why the bank manager willingly and gladly gave him back the P 100,000.00 plus the interest of P 300,000 amounting to a total of P 400,000.00. No sweat, they already made more or less a total of P 6,400,000.00 from the OFW’s P 100,000.00 deposit. Now you tell me if that isn’t hi-way robbery !

Think like the bank if you want to be more wealthy and a more better steward of your money ! The Rule of 72 works ! Make it work for you !

Would you like to know more about investment strategies ? Visit the blog of Zigfred Diaz where he writes about several interesting topics such as investments, money management, business, making money online and Stock market investing