Project Stocks

An Overseas Filipino Worker (OFW) started to work abroad. Having worked for several yeaers there at the age of 29 had a total savings of P 100,000.00 (Philippine peso)

Because the only mode of investment he knew about was to put his money in the bank, he placed his P 100,000.00 in the bank. Of course, the bank manager was delighted when he opened the account. He even recommended that the money be placed in a time deposit account in order that it would yield 4 % per annum, a much more higher interest rate than an ordinary savings account.

So he placed his money in the time deposit account and waited until he reached the age of 65. At the age of 65 he went back to the bank and asked to withdraw the P 100,000.00 in his time deposit account. Lo and behold his P100,000.00 already became P 400,000.00 because of the interest. So he withdrew his money from the bank and lived happily ever after.

So tell me, is this a “live happily ever after” story or not? Do you think this OFW has “wisely” handled his money? Did he really maximize his money’s potential or did he just made others more richer ?

The rule of 72 gives us the answers to the above questions. This rule determines how many years it will take your money to double. The rule is expressed in this very simple equation: 72 / interest = No. of years it takes for your money to double

In the case of this Filipino OFW, every 18 years his money will double. 72 divided 4 % per annum = 18 years. So if he deposited his P 100,000.00 at age 29, his money will become P 200,000.00 at age 47. Add another 18 years then he reaches the age of 65. This time his money becomes P 400,000.00.

The bank on the other hand takes that P 100,000.00 and invests it at mutual funds, the stock market, the money market, government bonds, corporate bonds etc. averaging a 12 % return on the P 100,000.00 that the OFW placed under time deposit. Under the rule of 72, that same amount of money will double every 6 years. (72 divided by 12 % interest = 6 years)

After 36 years of waiting, the OFW claimed his P 100,000.00. You wouldn’t be surprised why the bank manager willingly and gladly gave him back the P 100,000.00 plus the interest of P 300,000 amounting to a total of P 400,000.00. No sweat, they already made more or less a total of P 6,400,000.00 from the OFW’s P 100,000.00 deposit. Now you tell me if that isn’t hi-way robbery !

If you want to be wealthy and be a better steward of your money then think like the bank! Make the Rule of 72 work for you !