How The Rule Of 72 Is Used By The Banks To Rob You
Once upon a time an Overseas Filipino Worker (OFW) started working abroad. At the age of 29 he had already saved a total 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.
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.
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 ?
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 when the OFW went back to the bank after 36 years and claimed his P 100,000.00 the bank manager gladly gave him back his P 100,000.00 plus the interest of P 300,000 amounting to P 400,000.00. After all they already made P 6 million pesos out of the OFW's P 100,000.00. Now isn't that 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 ! - 23212
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.
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.
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 ?
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 when the OFW went back to the bank after 36 years and claimed his P 100,000.00 the bank manager gladly gave him back his P 100,000.00 plus the interest of P 300,000 amounting to P 400,000.00. After all they already made P 6 million pesos out of the OFW's P 100,000.00. Now isn't that 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 ! - 23212
About the Author:
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 @ 1:20 AM
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