Ep 120 - The Rule of 72 and 115

Hey, everybody. Flip and Danny here, founders of the Freedom Real Estate Group family of companies. And welcome to another episode of our podcast, which is called Freedom through Passive Income. There we go. And today's episode is called what is the rule of 72? Yes, Danny, what is the rule of 72?

Like, are you going to keep on going? Are you going to ask me a question?

Yes. My question to you, Danny, is what is the rule of 72?

All right, so the rule of 72 is essentially how long it's going to take for you to be able to double your investment based on a fixed rate of return, an annualized fixed rate of return. So it's something that people say all the time. Well, just use the rule of 72. And before a while ago, I'm like, what's the rule of 72? I don't get it. Why does everybody talk about it? Oh, now I understand. Because when you're trying to set goals, it's really an easy way to kind of say, hey, in this amount of time, based on the rate of return that I'm getting, I'm going to have X dollars. So now I'm this close to my goal, and you can start evaluating where your money is and use that rule to kind of play with the numbers. Essentially, that's what I would do on an Excel sheet. It's like, this one's earning six, this one's earning eight. Okay, when does this one double? When does this one double? And what do I have here in this year based on that math?

Gotcha. And so today, I am today's year old on learning this, what the rule of 72 is. Just to let you know, we do so many different things, you know, with all of our deals, that that's in her world. My world is something completely different. I didn't even know this, but what you do is you simply divide 72 by the fixed rate of return.

And so here's an example. We're going to take $100,000, and you're going to get a 6% interest rate on that money. Okay? So you're going to take the rule of 72, 72, and you're going to divide it by the interest rate that we just said we're getting, which is 6.6percent, right? So if you take 72 and you divide it by 6, that means you're going to double your money in approximately 12 years. Now, if you're getting 8%, you're going to take 72, divide it by eight, and you're going to double your money in approximately nine years. Do it with 10%, you're doubling in 7.2 years. Do it with 12%, you're doubling in six years. Now, for all of you math geeks out there, this isn't perfect. There's some variables around there, and they say that if you're in the like 2 to 6% range, it's off by some examples that I read was by like six months or something. But if you're in the 6 to 10, it's really, really close. 12's even pretty close. But you get higher than that, it gets off again. So one article that I was reading was like, well, you could use the rule of 70 when you're in this range. And I'm just like, okay, we like to keep things simple. So let's just stick to the rule of 72. And now we're in the ballpark, right? That's all that matters to me. When I'm setting goals, I just want to be in the ballpark. So that's the rule of 72. Pretty simple if you just remember it. Take the interest rate that you are receiving on an investment divided by 72. It does need to be a fixed annual rate of return for this to work. And then I learned something yesterday. Apparently there's a rule of 115.

There's another rule.

And what's the rule of 115? Flippy?

That's a very good question. Let me read right here what it says. This is to triple your investment. So it's the same thing with the rule of 72. You just take the 115 divided by the interest and that'll tell you how many, approximately how many years, you'll triple your investment.

Yeah.

So as. Even though we say approximate, you still wrote down decimal points to the third decimal point.

Well, you should have seen the decimal points that was on my calculator as I was doing this.

But 6% interest was 19.16 years, 8% interest, 14.375 years, 10% is 11.5 years, and 12% is 9.58 years, which is. That's 9.58. So that takes you to about.

What is it?

July 12th. No, just kidding.

So again, the idea here is a lot of people have difficulty setting goals. And when you're trying to achieve financial freedom through passive income, you need to take the investment buckets. You ultimately have to define your freedom number. Right. The very beginning steps that we talked about when we started this podcast series, you got to go through those first. But once you've Defined that basic information, you know what you want and by when. And then you can say, I invested in this syndication for 12% and this is how much? $100,000 at 12%. So this is how long it will take me to double that money. Or here's the approximate return that I'm going to get in X amount of time. And then you just use an Excel sheet and just go investment, investment, investment. And. And you can use simple math like this to ballpark it or you can actually use the details of the deal because very likely they gave you a Performa, an example of what the projected returns are even though they're not guaranteed. You could have some private lending examples on there and you could say, here's what I'm getting and the minimum, it's going to be probably six months, but I might be cashed out sooner. Whatever those things look like, you can just do it in Excel and you can start. And it's really simple for those who aren't math geeks or aren't engineer brains.

Left brain.

Yeah. That love all the numbers. It's simple for a right brainer to be able to just ballpark stuff and have an idea of where you're going because that makes all the difference in the world for you to see the end game and know what you're doing. Because then you begin to be more intentional and more excited about what you're doing as opposed to I've got money here and I've got money here and I'm not really sure what it's doing or if I'm gonna earn something.

It's doing something.

Yeah. You never really get intentional or very excited because you're just feeling. So I hope this episode helps everybody have some generalities. That's all it is. They're generalities. They're not exact. Because we're not trying to be exact. Left brainers right here.

Exactly. Well, we hope that this episode was informative because it was to me too. Make sure you're joining our investor club, freedomcapitalinvestments.com go over to that website and join our investor club. There's more information there than on our other groups. But don't forget about our groups on Facebook and LinkedIn because you can talk, talk to the team there. Let them know if you have any questions or suggestions or whatever. Make sure, if you're on YouTube, make sure you hit the subscribe button letting us know how we're doing and if you have any requests or anything like that. But we'd like to end all of our episodes with Invest Smart Live Happy. Bye everybody.

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