Perhaps the easiest financial rule of thumb is the Rule of 72. Here’s how it works:
Suppose you can estimate how fast your investments might grow, and you’re wondering how long it will take for your account to double in size. The Rule of 72 makes it extremely easy. Here’s an example: If your account is growing at 5% per year, then you simply divide 72 by 5.
72/5 = 14.4
At that rate, your investments would double in about 14 years.
You could use this approach to calculate how long it would take to reach a retirement goal. For example, if you have $250,000 today, and you’re hoping to get to $1 million by retirement, the Rule of 72 would tell you. Continuing with the above example, your investments would double to $500,000 in 14 years and would double again to $1 million by year 28.
The Rule of 72 isn’t perfect because it doesn’t incorporate additional savings along the way. But it’s very useful for quick calculations like this.
