Every Enterpreneur Should know Rule of 72
Below Guest post is written by Hemant Thaker. Hemant is a business owner in Mumbai Diamond market. His company ‘AllYours‘ is one of the fastest growing partner for buying diamonds & Jewelry. AllYours has a website www.allyours.in to enable customer-friendly style of diamond and Jewelry buying. You can also visit AllYours on facebook
Some of the wealthiest long term investors do not make more than 15 – 18 % per year. However one thing which makes the fortune for a long term investor is patience. A typical good long term investor makes only 15% per-anum but he repeats this year-on-year. Compounding a small amount for several years gives a very big number.
Everyone should know essence of Compound Interest. One Lakh rupee compounded at 18% gain for 10 years becomes ~5 Lakhs, however if you continue it to grow for 20 years it becomes 27 Lakhs. In compounding longer the period – more multiplying returns you get.
Let me share one cool math trick known as ‘Rule of 72‘ . Whenever you hear anyone talking about percentage use this rule to understand situation. The way ‘rule of 72’ works is if you divide (69 or 70 or 72) by percentage(rate of interest) – you will get number of years in which amount doubles.
Example 1 : If your uncle tells you that his bank is offering 10% interest on savings for senior citizen. Divide 70 by 10 = 7 years. Approximately in 7 years his savings will double the present value. If he keeps 1 lakh rupees in 2010, in 2017 it will become 2 Lakh and in 2024 it will become 4 lakhs.
Example 2: If you read in newspaper that population in some city is growing at 5 % – divide 70 by 5 – gives 70/5 = 14 years. It means in approximately 14 years population of whole city will double.
Example 3: On National geography documentary when you hear that pollution in atmosphere is increasing by 1% every year- divide 70 by 1 gives 70/1 = 70 years. If it continues to stay like that in approximately 70 years pollution will double from present situation.
At what percentage is your business growing? Now you know how to calculate numbers of years in which you will double your empire.