The Rule of 72

Carrying on the theme about inflation, I thought I would introduce you to a little known calculation to help you work out the corrosive effects of inflation on your money. 

Put very simply, you can use the number 72 to determine how long it will take for your money to halve in value.

You divide the number 72 by the expected level of annual inflation to tell you by the number of years that it will take for your money to halve in value.

Here are some figures. 

At 2% inflation it takes 36 years for your money to halve in value (72/2)

At 3%,  24 years

At 4%, 18 years 

At 5%,  14 years

And at 7% only 10 years. 

As you can see an annual inflation rate of 7% would seem highly attractive to a Government such as the UK which has a public debt of approximately £1.85 trillion.

 

But it would have the same halving effect on the spending power of our own savings.

If you would like to talk to me about the potential effects of inflation on your finances and how to protect them, or any other financial matter in general you can contact me on gareth.horsfall@spectrum-ifa.com or call me on +39 333 649 2356