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How Understanding the ‘Rule of 72’ Helps You Make Personal Finance Decisions

Though everybody wants their money to grow, few people understand the best way to make that happen. It’s all about where you choose to put your money and the rate of growth you’re able to achieve over a period of time. When you’re trying to figure out how compound interest works, the “rule of 72” is one of the most helpful tools available. 

What is the Rule of 72?

The Rule of 72 is a helpful, easy-to-understand formula that predicts how many years it takes money to double based on a specific rate of return. You can use it to make decisions about where to put your money based on how much time you have for it to grow and what your risk tolerance is. If your goal is to have twice as much when you finish as when you start, you can identify the interest rate you need based on how much time you have. All you need is the interest rate to complete the calculation, which is based on the following formula:

72 / interest rate = years to double

With this simple calculation, you can look at the interest rate offered by various savings tools or anticipated growth of investments and see exactly how long it will take for your money to double. Here’s how different rates of interest impact the time needed to double:

At 1%, it will take 72 years for your money to double (72 / 1 = 72)
At 3%, it will take 24 years for your money to double (72 / 3 = 24)
At 6%, it will take 12 years for your money to double (72 / 6 = 12)
At 9%, it will take 8 years for your money to double (72 / 9 = 8)
At 12%, it will take 6 years for your money to double (72 / 12 = 6)

This list provides as clear a picture as anybody could possibly need of the difference between parking your money in a super-safe, standard savings account that pays 0.09%, and investing in a riskier investment such as the stock market, where the average annualized total return for the S&P 500 index has been just shy of 10% over the last 90 years. It’s a 790-year difference when it comes to doubling!

The same formula can be very useful when it comes to taking out loans. Whether you are looking for a new car, a mortgage for a home purchase, or paying interest on your credit card, if you divide 72 by your interest rate, you’ll see exactly how fast the lender (or credit card company) is doubling the money that you’re paying them. It’s a helpful guide to steering clear of usury rates by loan shopping and understanding the advantages of refinancing.

As straightforward as the Rule of 72 is, getting your personal finances in order can be a complicated task. For help with navigating complex decisions, contact our office today to set up a time to discuss your specific needs and goals.

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Get to Know Prestige Accounting Services Group (previously Prestige Wealth Accounting Group)


Offices in Flemington, NJ and Califon, NJ

Our Mission: At Prestige Accounting Services Group (previously Prestige Wealth Accounting Group), we are on a mission to redefine the tax experience for individuals and small businesses. With a focus on personalized service, strategic planning, and expert guidance, we aim to empower our clients to succeed financially with confidence and ease.

Expertise in Action: With a wealth of experience and a team of dedicated professionals, we specialize in individual and small business tax preparation. While we excel in all areas of taxation, our passion lies in serving the unique needs of small business owners in New Jersey. We understand that small business taxation requires specialized knowledge and attention to detail, which is why we go above and beyond to ensure our clients receive the guidance and support they deserve.

Tailored Solutions for Every Client: Whether you're a high-net-worth individual seeking comprehensive tax planning or a small business owner in need of accounting and bookkeeping assistance, we have the expertise to meet your needs. Our team takes the time to understand your specific situation and develop customized solutions that align with your goals and objectives.

Why Choose Us?: What sets us apart from other New Jersey tax firms is our commitment to excellence and innovation in the field of taxation. We don't just prepare tax returns; we provide strategic insights, proactive planning, and actionable advice to help our clients achieve their financial goals. With a team of two CPAs, an EA, and an ERO, we have the expertise and resources to deliver exceptional service and results.

Your Success is Our Priority: At Prestige Accounting Services Group (previously Prestige Wealth Accounting Group), we measure our success by the success of our clients. We are dedicated to building long-lasting relationships, providing unparalleled service, and helping our clients thrive in today's ever-changing tax landscape.

We can't wait for you to experience the Prestige Accounting Services Group (previously Prestige Wealth Accounting Group) difference.

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