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DOUBLE YOUR MONEY
There is
a formula called the "Rule of 72" that you can use
to calculate the number of years it will take to double your
money when you invest it in a savings account, mutual fund,
or other investment.
Here's how it works:
Divide 72 by the interest rate you expect to earn. This will
demonstrate how many years it will take to double your money.
Example:
Assume you earn 6 percent interest on your money every year.
72 / 6 percent = 12 years
So, if you invest $500 at 6 percent interest, the money will
double to $1,000 in 12 years—without your having to lift
a finger.
Young people have an amazing ally when it comes to saving—time.
The more you invest at a young age, the faster your money
will work for you.
Take a look at these two retirement accounts.
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Cooper's IRA
|
Brittany's IRA
|
|
| Interest Rate |
9 percent
|
9 percent
|
| Number of Years of Contributions |
10 years
(age 21 to age 31)
|
34 years
(age 31 to age 65)
|
| Amount Contributed |
$10,000/
$1000 year for 10 years
|
$10,000/
$1000 per year for 34 years
|
| Value at Age 65 |
$284,541
|
$196,982
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Cooper invests for only 10 years but ends up with a lot more
money than Brittany. Why? Because he started young and let
his money work for him. This is called the "time value
of money."
Imagine how much they'd have if they had started at age 18
or 19.
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