One of the most powerful forces in the universe for wealth creation is compound interest.

The rule of 72 is a tool you can use to easy estimate the number of years it will take for your money to double if you are compounding your money at a certain rate each year.

Take for example a 4% rate of return. If you divide that into 72, you will get 18. That means if you are getting 4% on your money each year, in 18 years the money will double.

Now if you could get say…12% you would double your money every 6 years. And the results are exponential, which I’ll show you in just a second.

But first, the rule of 72 can work for you…but also against you.

It works against you when we’re talking about inflation.

Government statistics say inflation is about 2-3%. Most people with an ounce of common sense know that’s not true. In fact, all you have to do is look at the way the government used to calculate inflation back in 1980 and see how they’ve changed it to realize, they exclude key items to make the numbers suit themselves.

Some experts show that if you factored inflation they same way they did in 1980, we would be closer to 10%.

I’ll write another article in this series on inflation to address that specifically but lets just look at what inflation does to your wealth.

If you were 47 years old living off 100,000 per year, and inflation was 4%, 18 years later you reach retirement age of 65.

The rule of 72 states that your money doubles or in this case, gets cut in half every 18 years at 4%, because of inflation.

So now your 100,000 at age 47 is really like living off $50,000 at age 65.

Bad news huh?

Well it doesn’t stop there.

Are you going to live past age 65? I hope so.. Many people are living well into their 80’s and sometimes 90’s.

Lets say you live to age 83. That’s another 18 years, and now that 100k you were living off at age 47, is really worth 25,000.

How comfortable would you be living off $25,000 right now?

That’s why inflation is one of the enemies of wealth. The other 3 are Taxes, Market Loss and Interest.

It is critical that we win the inflation battle to create financial security.

How do we do that?

You get your money to compound for you at a rate of return that is higher than the rate of inflation.

Take a 30 year old who invests 10,000 at 4%.

In 18 years that money at age 48 is now 20,000.

In another 18 years you are now 65 and the money has doubled again to $40,000.

Not great, but you would be hopefully keeping up with inflation.

What happens if you were to increase your rate of return by 4% to 8%.

Now, using the rule of 72, your money is doubling every 9 years, instead of 18.

Lets look at what that does…you might think it would double your money, since you doubled the rate of return.

You would be wrong.

If you start with 10,000 at age 30, your money doubles to $20,000 by age 39. Then at 48 you have $40,000, 57 you have $80,000 and 66 you have $160,000.

$160,000, that’s 4 times more than you would have at 4%!

A minor increase, just 4% in the interest rate you earn, quadrupled the money you made.

This is the power of the rule of 72 and compound interest.

And this is why it’s so important to get a decent rate of return safely. Letting your money sit in accounts where you get paid little to know interest is like going backwards 4% per year!

Using Safe Money Millionaire strategies you can safely grow your money and get a good rate of return.

To Freedom, Prosperity and Independence,
Brett Kitchen