Theory 1 for Financial Freedom: Rule of LXXII

Have you ever wondered when will your money double?

Actually, when I started in my journey of saving via the BPI Direct Save-up I was only wondering how my money will grow given the measly interest rate?  If you ask me how it will double, I really had no idea.

In one seminar I attended, this exact question was discussed.  Hearing the “Rule of 72”, the Engineer in me got curious and amazed how this rule was never shared in school when I studied Economics.  This is Theory 1 or one of the mathematical formulae useful for Financial Freedom which I will be sharing one by one.

As Investopedia defines this,

Rule of 72_Investopedia

(source: http://www.investopedia.com/terms/r/ruleof72.asp)

To break this down further:

A savings account in the PH will give you <1% interest.  For simplicity’s sake, assume 1% interest rate and your money will double every 72 years.  The 1% gives a feeling of hopelessness as you will only see your money double once in your lifetime, if you are lucky.

Given that now you are more financially savvy and have been attending seminars, you learn different investment vehicles that will give you higher returns vs a savings account and you invested 100,000Php.  Here is the interest rate table and when will your money double:

“Investment Vehicle” Interest Rate Interest Total Amount No. of Years Money will Double
Savings Account 1% 1,000 101,000 72
Time Deposit 3% 3,000 103,000 24
Balanced Funds 7% 7,000 107,000 10
Bond Funds 5% 5,000 105,000 14
Stocks Funds 12% 12,000 112,000 6

Caveat, the interest rate captured here as of March 2015.  Again, do your due diligence.  Know also yourself.  If you have high risk appetite and tolerance, by all means go for high returns though it will also mean high risk.  But at least, now we know there are investment vehicles offering different interest rates and that there is a mathematical formula that gives us an idea when our money will double.

Advertisements
This entry was posted in Financial Literacy and tagged , , . Bookmark the permalink.

One Response to Theory 1 for Financial Freedom: Rule of LXXII

  1. Jonathan Eleda says:

    Hi wendy. I am interested in a high return,high risk. I want to buy an stock funds. Can you help me how to have an stock fund.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s