The Rule of 72: The Mental Math Shortcut Warren Buffett Uses

Here's a party trick that will make you sound smarter than everyone in the room. Someone mentions their savings account earns 5% interest. You nod and say, "So your money doubles in about 14 years." They ask how you calculated that so fast. You tell them: divide 72 by the interest rate. 72 / 5 = 14.4 years That's the Rule of 72, and once you learn it, you'll use it constantly. Why does dividing by 72 work? The actual formula for compound interest is A = P(1 + r)^t, where P is your principal, r is the annual rate, and t is time in years. To find the doubling time, you set A = 2P and solve for t: 2 = (1 + r)^t ln(2) = t * ln(1 + r) t = ln(2) / ln(1 + r) For small values of r, ln(1 + r) approximates to r. And ln(2) is 0.693. So t is approximately 0.693 / r, or 69.3 / (r as a percentage). Mathematically, 69.3 is more accurate. But 72 is divisible by 2, 3, 4, 6, 8, 9, and 12, which makes the mental math trivial. The slight overestimation also compensates for the approximation error at highe