What’s the Rule of 72?The Rule of 72 is a quick formula that allows one to find out how long it takes for an investment to double. Taking 72 divided by the interest rate gives us the years needed for an investment to double. Similarly, taking 72 divided by the years left to save gives us the interest rate needed for the investment to double.
In the last post, we talked about finding financial advisors that you trust. You can read Financial Literacy Lesson 8 – Why Not to Save Money And Rule of 72 Formula here.
But to make a quick recap, the financial advisors you want to work with provide their services (i.e. education) for free without the expectation of you becoming a client. That’s called relationship building and here’s another gold nugget: if you want any relationship to be successful, always be giving.
Find someone that YOU TRUST – it’s a strategy that has worked well for me and I know will work well for you too!
Rule of 72 Formula (SCROLL DOWN FOR THE VIDEO)
If we wanted to calculate how much interest rate is needed to double our cash given a number of years…
Here’s the Rule of 72 Formula for that:
Interest Rate Needed to Double Your Cash Based on the Number of Years Left to Save
72 ÷ Years Left to Save = Interest Rate Needed
If we had $10,000 and 20 years to save, then the interest rate we need is 3.6% interest rate to double that $10,000 to $20,000.
Let’s say we had 12 years left to save, in that case it is, 72 ÷ 12 = 6% Interest Rate is needed to double our money.
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Check out the accompanying “Financial Literacy Lesson 9 – Rule of 72 Formula Continued” Video Tutorial
Don’t Save With Your Bank
Remember, the savings account interest rate is 0.09%. So, that naturally leads to the question of “How many years do we need to double our cash with a savings account?”
The answer is,
72 ÷ 0.09 = 800 years.
You’re not going to be around no matter what, if you had $10,000, it’ll take 800 years to double that into $20,000.
Now, we are going to go through our Seven-step series – that’s going to be the rest of these posts.
The seven-step series is basically a checklist of implementation steps to get your personal finances in order.
These are the steps that you weren’t taught in school – and neither were they taught to me, until I started working with my financial advisor, Taeook.
Financial Education Course – Step #1
What you’re doing right now.
Find a Financial Advisor you trust. Like I said, my advisor NEVER charged me consulting fees. I actually gave him my money.
Story of How I met My Financial Advisor
If you follow me on social media, you might know that I’m an avid swing dancer. Particularly, West Coast Swing (if you have tiktok, you should follow me).
Anyway, I moved to the USA in 2016 for a software engineering job. I moved to the USA not knowing anybody, but luckily, as a dancer, it’s easy to meet people. I’d just go out at night to go dancing! That’s how I met my advisor – Taeook.
The first time we met, we actually met through a mutual friend who knew him from before. She was actually from Birmingham too who I met from dance. We decided to travel over to Atlanta, Georgia for a dance night. It was a bigger city and more fun over there. Taeook was kind hearted enough to host my friend and I for a night because after a night of dancing, we’ll be too tired to drive home for two and a half hours.
When we first me, we greeted each other and praised each other for our salsa skills. This was before I got into West Coast Swing. Anyways, he asked me where I was from and why I’m here and I gave him the whole blurb of me being from Vancouver, BC and coming down here for a software engineering job. I didn’t ask him what he did because I was incredibly selfish at that time.
I didn’t know he was a financial advisor at the time, I just knew he was a really good dancer. Anyway back to the story, we woke up the next day and had breakfast together and I finally popped the late-question “So Taeook, what do you do?” and he replied, “I teach people about money.” That is, he didn’t even mention that he was a financial advisor. He just told me that he educated people and I knew he was a financial advisor because my Canadian financial advisor (I’m Canadian) also did the same thing.
All LEGIT financial advisor are more interested in educating you than cutting deals with you.
At first, I was learning from him, but I wasn’t buying any products or services from Taeook. However, I kept coming back to Atlanta for dances and I needed a place to stay. Every time, Taeook would offer to host without costs or strings attached. Sweet. I took advantage of that deal.
At any rate, every time I went there, we didn’t talk about money at all. We just talked about dance. Our commonality. From his point of view, he was just making a new friend and hosting an out-of-town dancer (dancers do this quite often by the way).
After having so many brunches, lunches, and dinners together, we got onto the topic of personal finance and investing and this is when my education really started. I mean, I knew basic personal finance before, but this is when we took that and put it on steroids.
I learned about emergency funds, life insurance (universal, whole, term), mutual funds, interest rates, etc. That was very cool. But what’s cooler is that he never asked me to invest with him. He never tried to sell me before I was ready.
In fact, at that point, I was a software engineer and was making quite a bit of money (i.e. $75,000). I didn’t know what to do with that money, I just knew I needed to get my saving and investing strategy straight. So I went and said, “Taeook, I’m making a lot of money and I need to know where to save and invest it so that I’m taken care of in retirement” because you and I both know that the government WON’T TAKE CARE OF YOU.
With the debt and pensions that exists in the USA, there is absolutely no way that the government can take care of you. So, all the responsibilities fall on us (you and I).
Anyway, Taeook educated me and gave me some ideas, products, and services that I can get into (i.e. investment options) and really made sure that I understood how the strategies he recommended worked. Questions were encouraged and I wasn’t made to feel stupid (which some advisors unfortunately do). Education was the name of the game.
And that’s how I got started investing with Taeook. It’s been four years since then and I was NEVER charged any consulting fees for education, questions, etc. In fact, it’s been a great four years because MY MONEY (INVESTMENTS) MADE ME MONEY!
So, FIRST STEP – GET EDUCATED AND FIND A FINANCIAL ADVISOR THAT YOU TRUST.
Financial Education Course – Step #2
You and I both probably drive, unless we live in a big city with a great metro system, but most people drive.
As you’ve noticed, every single car requires insurance.
Similarly, houses also require insurance. If we live in an area with a high probability of natural disasters (i.e. tornadoes, earthquakes), then INSURANCE IS A GREAT IDEA.
In both these cases, we have piece of mind because if anything happens, the insurance pays for it.
Life Insurance is CRINGEWORTHY
I don’t know why, but when people talk about life insurance, they get cringey. People will likely ask “Why do I need this? This sounds like a scam.” Or “I’m fine, I’m healthy, I’m young, so I don’t need it.”
It is specifically when you are young and healthy that you should get life insurance BECAUSE YOU’LL BE PAYING VERY LOW PREMIUMS. Then, you’ll be protected when the unexpected happens like you being hit by a car and/or being struck by lightning. All your long-term care or health bills are taken care of by the insurance.
People care enough to buy insurance for their cars and houses, but not enough to buy insurance for their own life – Donald.
If you haven’t read my other post on how I ended up in the ER for four hours that COST me $7,000 for 4 HOURS. You can read that here.
With life insurance, you’re not paying for the money you’re beneficiary will get when you die. I mean, you are, but there are also other things that you’ll get and we will get into that in the next couple posts, so be sure to subscribe and look out for those.
That’s it for today’s post; I’ll see you next time!