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Make The Rule Of 72 Work For You !

Todays Date: August 20, 2018

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)

Since the only investment vehicle he knew about was putting his money at the bank he went to the bank and deposited his P 100,000.00. The bank manager gladly accepted the money and even recommended that he put it at a time deposit account so that it would yield a higher interest rate at 4 % per annum.

As suggested by the bank manager, he placed his money in the time deposit account and didn’t touch it until he reached the age of 65. Since he is retiring from his job, he went back to the bank to withdraw the P 100,000.00 in his time deposit account. To his amazement his P100,000.00 had already become P 400,000.00. Because he wanted to enjoy his life, he withdrew all his money and lived happily ever after.

So tell me, is this a “live happily ever after” story or not? Do you think this OFW has “wisely” handled his money? Did he really maximize his money’s potential or did he just made others more richer ?

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

In the case of this Filipino OFW, every 18 years his money will double. 72 divided 4 % per annum = 18 years. So if he deposited his P 100,000.00 at age 29, his money will become P 200,000.00 at age 47. Add another 18 years then he reaches the age of 65. This time his money becomes P 400,000.00.

Now that the P 100,000.00 is in the bank’s hand, what do they do with it ? Well they basically invest it in other vehicles of investments which gives them a higher interest rate such as mutual funds, the stock market, the money market, government bonds, corporate bonds etc. They even use it to loan it back to the depositors at a much more higher interest rate. But let’s just say that all of the bank’s investing activities gave a return of 12 % per annum. Using the rule of 72, it can be determined that the same amount of money will double every 6 years. (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 !

Would you like 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

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