The Awesome Power Of Compound Interest, Part I
(From What May Be The Most Important Chapter
In My Book Taking The Mystery Out Of Money)
by Lonnie Scruggs

This chapter may very well be the most important chapter in this book. So I urge you to spend whatever amount of time necessary to fully understand the lessons outlined in this chapter. If you will learn, understand, and implement the awesome power of compounding of interest, you can become rich beyond your wildest dreams.

Suppose you had the chance to double your money in 10 years, would you consider that a good return? Hold on, don't be too quick with your answer. Before you can give a qualified answer, you would need to first know what rate of interest you would be earning. Do you
know?

If not, don't feel bad. Unless you've studied money and compounding of interest, you probably wouldn't know. But you will from now on. You're about to learn a very simple little rule that will enable you to answer such questions in seconds. And you won't need a calculator to do it.

Rule Of 72

It's called the "Rule Of 72". This simple technique makes it very easy to figure out how long it will take to double your money at a particular interest rate. Here's how it works.

If you divide the interest rate into 72, the answer is the number of years it will take to double your money at that particular rate. For instance, to make the example simple, if your money is earning 10% interest, divide 10 into 72, and the answer is 7.2. That's how many years it will take for your money to double at 10%. (I know most people can't get 10 percent these days -- but you can do much better than 10% safely if you know how, which is what I teach in my books).

But suppose instead of 10%, you could earn 12%. How long will it take to double your money, then? Just divide 12 into 72, and we see that your money will double in 6 years.

You can also reverse this technique to determine what interest your money must earn in order for it to double in a particular number of years. Let's say you want to double your money in 10 years, what rate of interest would you need to earn? Divide 10 (number of years) into 72, and the answer is 7.2, which is the rate of return your money must earn in order for it to double in 10 years.

If you want to double your money every 6 years, divide 6 into 72 and you have your answer...12%. Now that you understand the rule of 72, let's go over several examples that will probably seem unreal to you. But this is real world stuff, so pay attention.

How Many Doubles Do You Have?

The age that you start your investment program will have a huge effect on how much money you will accumulate in your lifetime. So it's vital that you start as early in life as possible. Every year you wait will cost you dearly. Let me illustrate.

Robert is 24 years old and his goal is to retire with financial security at age 60. So he has 36 years to accomplish his goal. Yeah, I know, 36 years sounds like an eternity to you youngsters.
But just ask some of the old timers how fast 36 years can go by. Especially the one's who have already seen that time pass, and didn't have any money working for their retirement.

Let's say that Robert has $10,000, and the financial skills and knowledge to keep it earning 12% annually. If you've read my two books, Deals On Wheels and Making Money With Mobile Homes, then you know that earning 12% is a piece of cake. My starting point on a mobile home deal is 50%. And there are examples throughout this book that show how simple it is to earn 15%-20%. So don't be skeptical, learn how it's done and do it!

But since you probably are skeptical, I'll use 12% in this example, which is a very conservative figure and one well within your financial ability. Now, let's see what Robert's $10,000 will
compound to in 36 years. We know that by dividing 12 into 72, Robert's money will double every 6 years.

Starting At Age 24 With $10,000 Earning 12%

Six Doubles

Age 30 $20,000 1st Double
Age 36 $40,000 2nd Double
Age 42 $80,000 3rd Double
Age 48 $160,000 4th Double
Age 54 $320,000 5th Double
Age 60 $640,000 6th Double

Not too shabby, huh? Our table shows that by starting at age 24, with $10,000, earning 12% interest, it will take six doubles for Robert's $10,000 to compound to $640,000. And once he reaches that point, do you realize that he could then just spend the yearly interest ($76,800) and never touch his principal.

Yeah, I know what you're thinking, and you're right. Money that you won't see until 36 years in the future will have less value than today's dollars. And that's true, of course. But what I'm urging you to do is learn this concept and use it to your advantage. If you don't have a retirement plan, and no money when you reach 60, what's the value of that? So start some kind of a retirement program, and do it now!

Of course, you should try to improve these figures by increasing the interest rates, or make additional cash investments as the opportunities arise. Or, you could simply just start another
investment program like this one. But the worse case scenario in Robert's case is that he will have $640,000 when he reaches 60. And that should still buy all the groceries he can eat, and a few $20 beers.

Now, in order to illustrate the awesome power of compounding, let me show you what a tremendous difference it will make in Robert's retirement program if he learns how to double his money every 5 years, instead of 6. Of course, in order for Robert to do that he will need to increase his rate of return.

TO BE CONTINUED...

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