Succeed with The Rule of 72 and Smarter Money Management

“He had heard people speak contemptuously of money: he wondered if they had ever tried to do without it.”
— W. Somerset Maugham, author of Of Human Bondage

I don’t hate money. I hate the philosophy that dictates that money should be hated.

Yes, we can’t drown in greed to acquire it. We can’t infringe on anyone’s rights to amass it.

But we can’t also leave any legitimate way to earn it.

Agree? Then read on.

Digging around options to grow my money, I came across an intriguing concept: The Rule of 72. This simple formula helps you estimate how long it will take for your investment to double, based on a fixed rate of interest.

Here’s how it works: you divide 72 by the rate of interest. For example, if you invest your money at a 10% annual return, the math is straightforward — 72 ÷ 10 = 7.2. That means your investment will double in approximately 7 years and 2 months.

While the calculation may not always be exact due to variations in compounding and other factors, this rule is widely trusted by finance professionals.

Ever since I discovered it, I’ve been doing the math on different scenarios — testing how soon my savings could multiply depending on the rates I secure.

But doubling your money is just one part of the equation. To truly grow your wealth, you also need to understand how to balance risk and return.

The Balancing Act: Risk and Reward in Investments

As I dove deeper into financial planning, I learned about Mutual Funds (MFs) and Systematic Investment Plans (SIPs) — popular options for wealth-building. Yes, they involve risk, but risk isn’t necessarily a bad thing if managed wisely. It all boils down to three factors:

• Your Age
• Your Income
• The Type of Investment

In Your 20s: Take Bold Risks

If you’re in your 20s, this is the time to embrace higher-risk investments. With fewer responsibilities, you have the luxury to experiment and learn. High-risk funds often yield higher returns, and time is on your side to recover from potential losses.

In Your 30s: Balance Is Key

By the time you hit your 30s, financial responsibilities start piling up — maybe a mortgage, a family, or other commitments. At this stage, it’s best to strike a balance between high-risk, high-return funds and safer, low-risk investments. Think of it as building a financial safety net while still reaching for growth.

In Your 40s and Beyond: Prioritize Stability

As you grow older, your risk appetite naturally diminishes. If you’re in your 40s or beyond, especially with modest income levels, it’s prudent to focus on low-risk, stable investments such as Fixed Deposits (FDs), National Savings Certificates (NSCs), or NIFTY 50 stocks. These options might not yield astronomical returns, but they safeguard your savings.

The Reality of Inflation: Why Playing It Too Safe Can Hurt

While safe investments like FDs and NSCs provide security, they often fail to outpace inflation. Here’s an example:

• Suppose you invest ₹1,00,000 in an FD with a 7% annual return. According to the Rule of 72, your money will double to ₹2,00,000 in about 10 years.
• However, due to inflation, ₹2,00,000 in 2034 may have significantly less purchasing power than ₹1,00,000 in 2024.

This is why diversification matters — allocating some funds to low-risk options and others to higher-yield investments can help strike the right balance between growth and security.

Diversify Income Streams: The Side Hustle Advantage

If you’re over 40 and find yourself constrained by a limited income, it’s wise to supplement your earnings through freelancing or side hustles.

Skills like writing, accounting, or coding can open doors to impressive opportunities. The extra income can then be invested strategically, bolstering your financial stability.

There are tons of books, online courses, and other material to upskill and learn on your preferred time and pace. Choose what suits you.

The Wisdom of Early Investing

Financial success isn’t just about how much you earn — it’s about how wisely you save and manage it. The sooner you start investing, the greater your potential for compounding returns.

Sadly, many people in their youth splurge on fleeting pleasures, only to regret the lack of a safety net when tough times hit.

Remember this golden rule: Affluence today doesn’t guarantee affluence tomorrow. Circumstances can change, and having a robust financial foundation is essential to weather life’s uncertainties.

It’s Never Too Late to Start

No matter your age or financial situation, the best time to start improving your finances is right now.

Whether it’s mastering the Rule of 72, exploring SIPs and MFs, or simply cutting back on unnecessary expenses, every step you take brings you closer to financial freedom.

What’s Your Plan?

Have you started investing yet? Are you leveraging your skills to create additional income streams? Share your strategies or questions in the comments. Let’s inspire each other toward a financially secure and fulfilling life.