Subscribe Feed (RSS)There was once an Overseas Filipino Worker (OFW) who worked abroad for several years. At the age of 29 his savings already amounted to P 100,000.00 (Philippine peso)
Because the only mode of investment he knew about was to put his money in the bank, he placed his P 100,000.00 in the bank. Of course, the bank manager was delighted when he opened the account. He even recommended that the money be placed in a time deposit account in order that it would yield 4 % per annum, a much more higher interest rate than an ordinary savings account.
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.
Is this a “live happily ever after” story or not? Do you consider this OFW as somebody who has “wisely” handled his money? Is he really earning the maximum potential for his money or is he making somebody else rich.
Under the rule of 72, in order to determine how many years it takes for your money to double you only need to follow this very simple equation: 72 / interest = No. of years it takes for your money to double
In the case of this Filipino OFW, every 18 years his money will double. 72 divided 4 % per annum = 18 years. So if he deposited his P 100,000.00 at age 29, his money will become P 200,000.00 at age 47. Add another 18 years then he reaches the age of 65. This time his money becomes P 400,000.00.
Now that the P 100,000.00 is in the bank’s hand, what do they do with it ? Well they basically invest it in other vehicles of investments which gives them a higher interest rate such as mutual funds, the stock market, the money market, government bonds, corporate bonds etc. They even use it to loan it back to the depositors at a much more higher interest rate. But let’s just say that all of the bank’s investing activities gave a return of 12 % per annum. Using the rule of 72, it can be determined that the same amount of money will double every 6 years. (computed as follows: 72 divided by 12 % interest = 6 years)
After 36 years of waiting, the OFW claimed his P 100,000.00. You wouldn’t be surprised why the bank manager willingly and gladly gave him back the P 100,000.00 plus the interest of P 300,000 amounting to a total of P 400,000.00. No sweat, they already made more or less a total of P 6,400,000.00 from the OFW’s P 100,000.00 deposit. Now you tell me if that isn’t 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 !
Want to know more about investment strategies ? Visit the blog of Zigfred Diaz where he writes about several interesting topics such as investments, financial management, business, making financial online and Stock market investing
Tags: financial management, financial planning, investing, investment strategies, investments, making the Rule of 72 work for you, money management, mutual funds, Rule of 72, stock market, wise investing
