"When you are an investor, the Rule of 72 is your friend. It helps your money grow. But if you have debt, the Rule of 72 is your enemy."
The previous statement from the book 'Quit Like a Millionaire' tells an interesting tale about compounding. Let's understand:
The Rule of 72 helps in calculating how long it will take to double an investment's value.
For example, if you invest ₹5 lakh at 12%, it will double in 6 years (72/12 as per the Rule). Sounds like a friend?
But the book says this rule becomes an enemy when you go into debt.
For example, suppose you take a ₹5 lakh personal loan at 20% interest. Your loan will double in 3 years 6 months (72/20) and quadruple in another 3 years 6 months.
The loan will continue to multiply until you close it.
The book says, “Debt is so scary. If you don't kill it, the debt monster gets bigger and bigger until it's consuming everything in its path.”
As per CRISIL, the debt burden for households in India is increasing at a faster rate than savings.
If you have multiple loans, do you plan to close them soon or let the burden grow uninterrupted?
Thanks for reading!
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