Personal Finance: Managing Your Money (Rules of 72)

Taxable Account

- taxes are paid on money BEFORE it is INVESTED - you pay tax on the money before it is invested

What is the Rule of 72?

- the TIME that it will take an investment to DOUBLE at a GIVEN RATE, using COMPOUND INTEREST

What are the 3 Things the Rule of 72 can Determine?

...?

What are important things to know about the Rule of 72?

1) it is only an approximation 2) assumes the interest rate stays constant 3) does not allow for additional contributions beyond the original principal 4) does not account for taxes or fees 5) the interest earned is reinvested

What is the Equation for the Rule of 72?

72/(interest rate) = # of years

How is a tax differed account different from a taxable account?

taxes are not paid until the individual withdraws the money from the investment