Hello Entrepreneur – Meet the Rule of 72

“Entrepreneurship is living a few years of your life like most people won’t, so that you can spend the rest of your life like most people can’t.” — Anonymous
This concept is appealing to most if not all Entrepreneurs. That’s why it’s baffling that Sales Contracts most Entrepreneurs never make it to the point of living the life of their dreams.
Fact: money is and will always be required to survive. Most people (Entrepreneurs included) work hard for money and spend that money on doodads and liabilities: things that will either sit somewhere without producing a return on the investment used to purchase it or worst; things that cost more money to maintain while siting somewhere without producing a return on the investment used to purchase it.
Wealthy people use the money that they work for to purchase assets: things that will generate a return on the investment used to purchase it. There by putting their money to work for them. They then use those returns to purchase doodads and liabilities.
Just ask yourself of all the things you purchased in your recent past what is the cumulative return you expect those things to produce? Certainly this is a rhetorical question however it’s something worth thinking about.
Maybe you’re a savvy investor. Maybe you’re a fan of “The Richest Man in Babylon” (awesome book, read it), and you:
• donate 10% of your income (it’s better to give than to receive)
• spend 10% of your income on education (the return on self-education is infinite if and only if that self-education is applied to produce in the marketplace)
• save 10% of your income (Bank of America currently pays 0.1% interest on their Personal Money Market Savings Account)
• invest 10% (1.91% 5 year return on AMRMX which CNN Money calls one of the best Large Cap funds available today)
• blow 10% (it’s a good health practice to let your hair down and have fun sometime)
• and live off of the last 50% of your income (food, clothing, shelter, bills etc.)
If so, congratulations, you are awesome! However you can still use some help from my friend, the rule of 72.
Investopedia defines the rule of 72 as a rule stating that in order to find the number of years required to double your money at a given interest rate, you divide the compound return into 72. The result is the approximate number of years that it will take for your investment to double.
Given that definition let’s look at the money working for you in your savings account at an astounding 0.1% interest. 72/0.1 = 720. That’s 720 Real Estate Purchase Agreement California years before your money doubles. You’d have to send your great, great, great, great, great, great x 15 Granddaughter by to pick up your check.
What about the money working for you in your high yield Large Cap mutual fund, highly recommended by CNN Money, at a staggering 1.91% (let’s round it 2% to make the math easy) return rate. 72/2 = 36. That’s 36 years before your money doubles. Let me tell you, a lot better than 720 years but still a long time when you considered wealthy people constantly put their money in vehicles that provide 10% or more of a return. 72/10 = 7.2. Here’s the secret: having your money double every 7 years or less (investments with > 10% return) is how you live the rest of your life like most people can’t.
Where can you find investments boasting of 10% or greater in returns you ask? All over. The two most popular sources: the stock market, and real estate. My favorite… Commercial Real Estate. Whatever your vehicle, talk to a Registered Investment Advisor (RIA) to accurately gauge the risk. You’ve been enlightened. Invest wisely my friends.

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