How The Rule Of 72 Is Used By The Banks To Rob You
There was once an Overseas Filipino Worker (OFW) who worked abroad for several years. At the age of 29 his savings already amounted to P 100,000.00 (Philippine peso)
Because the only mode of investment he knew about was to put his money in the bank, he placed his P 100,000.00 in the bank. Of course, the bank manager was delighted when he opened the account. He even recommended that the money be placed in a time deposit account in order that it would yield 4 % per annum, a much more higher interest rate than an 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.
Is this a "live happily ever after" story or not? Do you consider this OFW as somebody who has "wisely" handled his money? Is he really earning the maximum potential for his money or is he making somebody else rich.
The rule of 72 gives us the answers to the above questions. This rule determines how many years it will take your money to double. The rule is expressed in 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
The bank on the other hand takes that P 100,000.00 and invests it at mutual funds, the stock market, the money market, government bonds, corporate bonds etc. averaging a 12 % return on the P 100,000.00 that the OFW placed under time deposit. Under the rule of 72, that same amount of money will double every 6 years. (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 !
If you want to be wealthy and be a better steward of your money then think like the bank! Make the Rule of 72 work for you ! - 23223
Because the only mode of investment he knew about was to put his money in the bank, he placed his P 100,000.00 in the bank. Of course, the bank manager was delighted when he opened the account. He even recommended that the money be placed in a time deposit account in order that it would yield 4 % per annum, a much more higher interest rate than an 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.
Is this a "live happily ever after" story or not? Do you consider this OFW as somebody who has "wisely" handled his money? Is he really earning the maximum potential for his money or is he making somebody else rich.
The rule of 72 gives us the answers to the above questions. This rule determines how many years it will take your money to double. The rule is expressed in 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
The bank on the other hand takes that P 100,000.00 and invests it at mutual funds, the stock market, the money market, government bonds, corporate bonds etc. averaging a 12 % return on the P 100,000.00 that the OFW placed under time deposit. Under the rule of 72, that same amount of money will double every 6 years. (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 !
If you want to be wealthy and be a better steward of your money then think like the bank! Make the Rule of 72 work for you ! - 23223
About the Author:
Would you want to know more about investment strategies ? Visit the blog of Zigfred Diaz where he writes about several interesting topics such as investments, financial management, business, making financial online and Stock market investing
posted by X - Men @ 1:45 AM
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