Rule Of 72
An Overseas Filipino Worker (OFW) started to work abroad. Having worked for several years there at the age of 29 had a total savings of P 100,000.00 (Philippine peso)
In order to preserve his P 100,000.00, he decided to place it in the bank, since this is the only vehicle of investment that he knew about. The bank manager was delighted that the OFW opened an account with them. He even recommended that the money be placed in a time deposit account enabling the OFW to earn more than the ordinary savings account.
So the money remained in the time deposit account until the OFW reached the age of 65. At that time, he then went back to the bank to withdraw the P 100,000.00. He was amazed when he learned that the P100,000.00 had already grown to P 400,000.00. He was quite happy with the growth of his money. He then withdrew the money from the bank, enjoyed life and lived happily ever after.
Do you think this is a "live happily ever after"? Has this OFW "wisely" handled his money? Are you sure he is maximizing the full potential of his money or has somebody become more richer because of his ignorance ?
Under the rule of 72, in order to determine how many years it takes for your money to double you only need to follow this very simple equation: 72 / interest = No. of years it takes for your money to double
Since the OFW deposited his money in a time deposit account, at 4 % per annum, his money will double every 18 years. (72 divided 4 % per annum = 18 years.) Since he deposited P 100,000.00 at age 29 add 18 years to that and his money will become P 200,000.00 when he reaches the age of 47. Add another 18 years to that and he reaches the age of 65 wherein this time his money becomes P 400,000.00
So what does the bank do with that P 100,000.00 ? Well, they take the OFW's money and invests it at mutual funds, the stock market, the money market, government bonds, corporate bonds and even consumer loans etc. averaging a 12 % return per annum. Using the Rule of 72, the OFW's P 100,000.00 will double every 6 years. (This is computed as follows: 72 divided by 12 % interest = 6 years)
So after 36 years when the OFW goes back to the bank to claim his P 100,000.00 the bank manager gives back his P 100,000.00 with a smile plus the interest of P 300,000 totalling to P 400,000.00.They wouldn't need that anyway since they already made a total of P 6,400,000.00 out of the OFW's P 100,000.00. Talk about hi-way robbery !
Think like the bank if you want to be more wealthy and a more better steward of your money ! The Rule of 72 works ! Make it work for you ! - 23217
In order to preserve his P 100,000.00, he decided to place it in the bank, since this is the only vehicle of investment that he knew about. The bank manager was delighted that the OFW opened an account with them. He even recommended that the money be placed in a time deposit account enabling the OFW to earn more than the ordinary savings account.
So the money remained in the time deposit account until the OFW reached the age of 65. At that time, he then went back to the bank to withdraw the P 100,000.00. He was amazed when he learned that the P100,000.00 had already grown to P 400,000.00. He was quite happy with the growth of his money. He then withdrew the money from the bank, enjoyed life and lived happily ever after.
Do you think this is a "live happily ever after"? Has this OFW "wisely" handled his money? Are you sure he is maximizing the full potential of his money or has somebody become more richer because of his ignorance ?
Under the rule of 72, in order to determine how many years it takes for your money to double you only need to follow this very simple equation: 72 / interest = No. of years it takes for your money to double
Since the OFW deposited his money in a time deposit account, at 4 % per annum, his money will double every 18 years. (72 divided 4 % per annum = 18 years.) Since he deposited P 100,000.00 at age 29 add 18 years to that and his money will become P 200,000.00 when he reaches the age of 47. Add another 18 years to that and he reaches the age of 65 wherein this time his money becomes P 400,000.00
So what does the bank do with that P 100,000.00 ? Well, they take the OFW's money and invests it at mutual funds, the stock market, the money market, government bonds, corporate bonds and even consumer loans etc. averaging a 12 % return per annum. Using the Rule of 72, the OFW's P 100,000.00 will double every 6 years. (This is computed as follows: 72 divided by 12 % interest = 6 years)
So after 36 years when the OFW goes back to the bank to claim his P 100,000.00 the bank manager gives back his P 100,000.00 with a smile plus the interest of P 300,000 totalling to P 400,000.00.They wouldn't need that anyway since they already made a total of P 6,400,000.00 out of the OFW's P 100,000.00. Talk about hi-way robbery !
Think like the bank if you want to be more wealthy and a more better steward of your money ! The Rule of 72 works ! Make it work for you ! - 23217
About the Author:
Would you want to know more about investment strategies ? Visit the blog of Zigfred Diaz where he blogs about several interesting topics such as investments, money management, business, making money online and Stock market investing
posted by X - Men @ 1:49 AM
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