Albert Einstein was a very smart man. One of the things that he left us with was a banking rule called, “The Rule of 72″. Ever heard of it? It’s a simple rule where you take the interest rate that the bank is offering you, divide it into the number 72 and the number that you get represents how long it will take your money to double. So one would look at their lives and determine, ‘How many doubling periods might I have in my life’? The numbers begin to shrink the older you get.
Here’s how it works:
- Someone gave you $10,000. Woohoo! You’d be pretty happy right?
- You deposit that $10,000 into Wells Fargo, Chase, TD Bank, etc.
- Those banks are offering a whopping 0.01% on a savings account
- You would divide the interest rate into the number 72 and it’s going to give you a number. In this case the number is 7200.
- With a 0.01% interest rate that many banks are offering, it will take your $10,000 investment 7200 years to double. Will you be here?
Make that calculation valuation for any interest rate and determine who’s getting the better share. You or them?!
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Here’s the raw and unadulterated truth. The global economy, places that we shop (Target, Walmart, Costco, Starbucks, etc), has been averaging 10-12% since 1924 in any 4-5 year period of history. So…all of the high rates go back to the banks and then the banks, credit unions and insurance companies, give you and I a portion of that…usually about 0-3%.
There is no way on this side of heaven that we…us…our families can EVER become financially independent with that little investment return. We cannot! And that is why many people are retiring BROKE. I always say, broke can be fixed, but you have to be properly educated about the “rules” and how they apply to you and your family.