Rule Of 72
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)
Because the only mode of investment he knew about was to put his money in the bank, he placed his P 100,000.00 in the bank. Of course, the bank manager was delighted when he opened the account. He even recommended that the money be placed in a time deposit account in order that it would yield 4 % per annum, a much more higher interest rate than an ordinary savings account.
So he placed his money in the time deposit account and waited until he reached the age of 65. At the age of 65 he went back to the bank and asked to withdraw the P 100,000.00 in his time deposit account. Lo and behold his P100,000.00 already became P 400,000.00 because of the interest. So he withdrew his money from the bank and lived happily ever after.
Is this a "live happily ever after" story or not? Do you consider this OFW as somebody who has "wisely" handled his money? Is he really earning the maximum potential for his money or is he making somebody else rich.
The rule of 72 gives us the answers to the above questions. This rule determines how many years it will take your money to double. The rule is expressed in this very simple equation: 72 / interest = No. of years it takes for your money to double
In the case of this Filipino OFW, every 18 years his money will double. 72 divided 4 % per annum = 18 years. So if he deposited his P 100,000.00 at age 29, his money will become P 200,000.00 at age 47. Add another 18 years then he reaches the age of 65. This time his money becomes P 400,000.00.
Now that the P 100,000.00 is in the bank's hand, what do they do with it ? Well they basically invest it in other vehicles of investments which gives them a higher interest rate such as mutual funds, the stock market, the money market, government bonds, corporate bonds etc. They even use it to loan it back to the depositors at a much more higher interest rate. But let's just say that all of the bank's investing activities gave a return of 12 % per annum. Using the rule of 72, it can be determined that the same amount of money will double every 6 years. (computed as follows: 72 divided by 12 % interest = 6 years)
So after 36 years when the OFW goes back to the bank to claim his P 100,000.00 the bank manager gives back his P 100,000.00 with a smile plus the interest of P 300,000 totalling to P 400,000.00.They wouldn't need that anyway since they already made a total of P 6,400,000.00 out of the OFW's P 100,000.00. Talk about hi-way robbery !
If you want to be wealthy and be a better steward of your money then think like the bank! Make the Rule of 72 work for you ! - 23196
Because the only mode of investment he knew about was to put his money in the bank, he placed his P 100,000.00 in the bank. Of course, the bank manager was delighted when he opened the account. He even recommended that the money be placed in a time deposit account in order that it would yield 4 % per annum, a much more higher interest rate than an ordinary savings account.
So he placed his money in the time deposit account and waited until he reached the age of 65. At the age of 65 he went back to the bank and asked to withdraw the P 100,000.00 in his time deposit account. Lo and behold his P100,000.00 already became P 400,000.00 because of the interest. So he withdrew his money from the bank and lived happily ever after.
Is this a "live happily ever after" story or not? Do you consider this OFW as somebody who has "wisely" handled his money? Is he really earning the maximum potential for his money or is he making somebody else rich.
The rule of 72 gives us the answers to the above questions. This rule determines how many years it will take your money to double. The rule is expressed in this very simple equation: 72 / interest = No. of years it takes for your money to double
In the case of this Filipino OFW, every 18 years his money will double. 72 divided 4 % per annum = 18 years. So if he deposited his P 100,000.00 at age 29, his money will become P 200,000.00 at age 47. Add another 18 years then he reaches the age of 65. This time his money becomes P 400,000.00.
Now that the P 100,000.00 is in the bank's hand, what do they do with it ? Well they basically invest it in other vehicles of investments which gives them a higher interest rate such as mutual funds, the stock market, the money market, government bonds, corporate bonds etc. They even use it to loan it back to the depositors at a much more higher interest rate. But let's just say that all of the bank's investing activities gave a return of 12 % per annum. Using the rule of 72, it can be determined that the same amount of money will double every 6 years. (computed as follows: 72 divided by 12 % interest = 6 years)
So after 36 years when the OFW goes back to the bank to claim his P 100,000.00 the bank manager gives back his P 100,000.00 with a smile plus the interest of P 300,000 totalling to P 400,000.00.They wouldn't need that anyway since they already made a total of P 6,400,000.00 out of the OFW's P 100,000.00. Talk about hi-way robbery !
If you want to be wealthy and be a better steward of your money then think like the bank! Make the Rule of 72 work for you ! - 23196
About the Author:
Want to know more about investment strategies ? Visit the blog of Zigfred Diaz where he blogs about several interesting topics such as investments, money management, business, making money online and Stock market investing
posted by X - Men @ 1:38 AM
0 Comments
0 Comments:
Post a Comment
Subscribe to Post Comments [Atom]
<< Home