There is an expression in finance called “the ballpark number.” It means close but not exact. The rules of 72 and 115 are similar in that they give you a close answer but not exact. They are useful numbers for basic calculations in your head.
The rule of 72 can help you estimate how long it may take to double your money. The rule of 115 can help you estimate how long it may take to triple your money.
How does the math work?
- For the rule of 72, divide the number 72 by your annual rate of return. For example, with a 6% rate of return, it will take approximately twelve years (72/6) to double your money. Thus $10,000, with an annual rate of return of 6%, would become $20,000 in twelve years (the actual number is $20,121.96).
- The 115 to triple calculation would be 115 divided by 6 equaling around 19 years. The mathematical results are $30,539.39 but $30,000 is good for a “ballpark” answer.
What are some practical applications? If your cost of living is going up at 3% per year (72/3), then your expenses will double in 24 years. You cannot retire on having just enough! If someone tells you they doubled their money in three years, you would know they must have been earning (72/3) 24% per year.
This is a hypothetical example and is not representative of any specific investment. Your results may vary.