Wouldn't it be awesome to know within one second how long it will take to double your money? Here is a simple trick that allows you to do just that.
Doubling your money – A simple mnemonic trick
The higher your interest, the quicker you will double your wealth. This is why it is crucial to choose the right level of interest rate.
The easiest way to remember when your money doubles is by memorizing the following mnemonic trick:
7 – 11 and 11 – 7
At 7% interest, it will take 11 years for your money to double.
At 11% interest, it will take 7 years for your money to double.
Richer through compounding
Even though interest rates in saving accounts or bonds are currently at a historic low, there are many dividend paying shares from blue chip companies out there earning you 4-5% per year.
But what if you don’t feel ready to pick a particular company to invest in or feel discouraged by the low interests?
Don’t despair and give in to voices claiming that there is no point in saving. Don’t listen to those naysayers seeing no point in saving as inflation reduces your purchasing power anyway and you’d be better off spending the money now. Or they tell you that you are not rich enough to allow you enjoying these wonders so it matters little anyway what you do.
To all these pessimists I say:
- You can benefit from the wonder of compound interest, no matter how much money you have.
- Inflation? Sure, but even then you will be much richer than you were seven years earlier. If you spend the money, you will be more than $/€/£ 10,721 worse off. Once your money is spent, it will not come back. So even low interest rates earn you $/€/£ 721 without doing any work. Plus the thousands of employees working for you.
- Without the interest you would have even less money to spend on purchases; thus the interest will give you greater purchasing power regardless of inflation.
- Just don’t buy things that are not worth your hard-earned money; inflation only hurts if you buy things whose prices go up with inflation. But that is not the case for all items: Particular expenses see price increases due to inflation. Some of these you have little control over: rent, insurance, electricity, gas. But even with these items, the choice is yours whether you move, change provider, or simply use less.
A great number of items that we use daily, however, are not at all affected by inflation, even cheaper than they once were.
Money not spent may even gain in value
Take for example computers: a real luxury item in the 1980s and 1990s. A Toshiba T1100 would have set you back $ 4,000 (€ 3,200 / £ 2,500) in 1985. And even in 1996, it would have still cost you $ 3,199 (€ 2,535 / £ 1,970). Still expensive, but already cheaper. Inflation did not drive up the price.
Indeed, inflation adjusted, the laptop should have been $ 6,000 (€ 4,760 / £ 3,698). In addition, the 1996 laptop was much faster than the 1985 version. Today you can get good laptops from a few hundred euros, dollars, or pounds. If computer prices had gone up with inflation, they should cost at least $ 8,000 (€ 6,345 / £ 4,930).
Or those massive cellular bones the rich were carrying around in the 1980s. Mobile phones were exclusively reserved for the rich. Today, everyone has at least one or two at home.
So purchasing power can certainly not be an argument for not saving and missing out on the miracles of compound interest. And with higher interest rates, the real compounding kicks in and you end up much richer even if prices went up.