The Rule of 72
The Rule of 72 is a great mental math shortcut to estimate the effect of any growth rate, from quick financial calculations to population estimates. Here’s the formula:
Years to double = 72 / Interest Rate
This formula is useful for financial estimates and understanding the nature of compound interest. Examples:
You can also use the rule of 72 for expenses like inflation or interest:
The rule of 72 shows why a “small” 1% difference in inflation or GDP expansion has a huge effect in forecasting models.
By the way, the Rule of 72 applies to anything that grows, including population. Can you see why a population growth rate of 3% vs. 2% could be a huge problem for planning? Instead of needing to double your capacity in 36 years, you only have 24. Twelve years were shaved off your schedule with one percentage point.
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