Albert Einstein is believed to have said “The most powerful force in the universe is compound interest.” The simple mathematical formula for computing compounded interest is called the rule of 72.

Although Einstein is best known for his theory of relativity, some declare that his discovery of the Rule of 72 is more important. Some skeptics however, declare that this rule had been known long before he was born. The majority nevertheless, believe that it was Einstein who popularized the rule.

So what is the Rule of 72 ? Why is it considered a basic rule that every-want-to-be-investor should know. The Rule of 72 allows you to determine when money would duple and how many years would it take to do it.

The math is not that hard. You only have to divide 72 by the interest rate and it will equal to how many years it will take for money invested to duple. But the Rule of 72 is not only limited to determining investments but can also be utilized in debt management. Thus the rule can also be equated this way: 72 / interest rate = number of years for your debt to double

As you can see, the Rule of 72 can also be used to find out the number of years your debt will duple. Whether that debt is by credit card, loan or mortgage, the Rule of 72 can be used.

To illustrate my point, let’s use the interest of a credit card. Credit card companies here in the Philippines charge around 3.5% interest per month or about 42% interest per annum. Now divide 72 by the interest rate (42) and you will notice that your credit card debt multiplies by 2 every 21 months. (72 / 42 = 1.7 years or 20/4 months).

So how will this help you? Even if the information above is not as precise since you will probably be paying some of your credit card debt, however, our illustration shows just how much credit card debts grow so fast. Now knowing that your credit card debt doubles every 21 months, you will be more convinced to pay up your credit card debt as soon as possible.

To learn more about the Rule of 72 visit the blog of Zigfred Diaz where he talks about other topics including debt management.