One of the most important discoveries in finance is the Rule of 72. It shows you how to calculate the effect of compound interest with a very simple formula.

Take 72 and divide it by the rate of return. The answer is the number of years it takes to double your money.

For example: With 4% interest

The Rule of 72

The rule of 72 unveils the powerful impact of compound interest on money. It also reveals 2 types of people.

• People who don’t understand how money works-they end up working for money.
• People who understand how money works-they let money work for them.

Wealthy people tend to spend time learning and understanding how money works. They took for advice and solutions to get better returns for their money.

A lot of poor people lack knowledge about personal finance.

Some don’t care to understand. Many have no plan and little savings. What savings they have are usually put into accounts with a low rate of return. Their money doesn’t work for them.

Compound interest works both ways. It can make you, and it can break you. If you owe money, the compound interest on your debt can ruin you.

As a result, many people keep paying the bill with high interest. Despite numerous payments, the balance of these bills barely goes down because high interest on the balance continues to compound. Sometimes, it feels as if it’s impossible to pay the balance off.

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