Once upon a time an Overseas Filipino Worker (OFW) started working abroad. At the age of 29 he had already saved a total of 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 he placed his money in the time deposit account and waited until he reached the age of 65. At the age of 65 he went back to the bank and asked to withdraw the P 100,000.00 in his time deposit account. Lo and behold his P100,000.00 already became P 400,000.00 because of the interest. So he withdrew his money from the bank and lived happily ever after.

So tell me, is this a “live happily ever after” story or not? Do you think this OFW has “wisely” handled his money? Did he really maximize his money’s potential or did he just made others more richer ?

The rule of 72 gives us the answers to the above questions. This rule determines how many years it will take your money to double. The rule is expressed in this very simple equation: 72 / interest = No. of years it takes for your money to double

Since the OFW deposited his money in a time deposit account, at 4 % per annum, his money will double every 18 years. (72 divided 4 % per annum = 18 years.) Since he deposited P 100,000.00 at age 29 add 18 years to that and his money will become P 200,000.00 when he reaches the age of 47. Add another 18 years to that and he reaches the age of 65 wherein this time his money becomes P 400,000.00

So what does the bank do with that P 100,000.00 ? Well, they take the OFW’s money and invests it at mutual funds, the stock market, the money market, government bonds, corporate bonds and even consumer loans etc. averaging a 12 % return per annum. Using the Rule of 72, the OFW’s P 100,000.00 will double every 6 years. (This is computed as follows: 72 divided by 12 % interest = 6 years)

So after 36 years when the OFW goes back to the bank to claim his P 100,000.00 the bank manager gives back his P 100,000.00 with a smile plus the interest of P 300,000 totalling to P 400,000.00.They wouldn’t need that anyway since they already made a total of P 6,400,000.00 out of the OFW’s P 100,000.00. Talk about hi-way robbery !

If you want to be wealthy and be a better steward of your money then think like the bank! Make the Rule of 72 work for you !

Are you willing to learn 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