The Rule of 72 — a Shortcut That Makes Anyone Look Like a Math Genius
This is one of the most useful math tricks I know. It’s called “The Rule of 72,” and I use it at least a few times every week.
Let’s start with some examples of what we can do with it.
- If you asked me how many years it would take for an investment account to double if it pays 6% per year, I could tell you in a heartbeat that it will take 12 years to double.
- Or if you told me that you are hoping to double an investment in 8 years, my reply would be that you should be planning for it to grow by at least 9% per year.
Are you seeing the pattern? Let’s do one more.
- If you bragged to me that you sold your house last year (2021) and that it had doubled in price since you bought it 24 years ago in 1997, I might ask you if a 3% per year gain really is bragworthy….
What do these pairs of numbers — 6, 12 and 8, 9 and 3, 24 — have in common?
When you multiply each pair together, you get 72. That’s it. That’s the secret.
Specifically, if you multiply (1) an interest/growth rate (as a percentage) times (2) a number of years (or periods) and the answer is 72, then you have a growth rate that will double over the given period of time.
That’s the Rule of 72.
This is a pretty simple math trick. It doesn’t give precisely accurate numbers, but for most pairs of numbers, it will be accurate to within 1% to 3%. So make sure you always preface your answer with “about” or “approximately” — and be confident that for something you will come up with in a matter of seconds, being within a couple percent of the precise answer is going to look impressive to anyone who doesn’t already know the Rule of 72.
- Back in mid-March 2020, I saw a twitter thread that walked through the math of Covid-19 cases growing at about 12% per day and what that would mean.
That told me instantly that case numbers — at least in those early days — would be doubling every 6 days.
And that meant 5 doubles in about 1 month — i.e., 30 days ÷ 6 days-per-double = 5 doubles. 5 doubles = 32X (2 x 2 x 2 x 2 x2 = 32)
- I knew instantly that unless those growth numbers quickly ramped down — and decreased by a lot — we were in for a once-in-a-century shitstorm of a pandemic.
- Because regardless…