Rule of 72

 

In 2001, our father was in the Norfolk Naval Hospital, and my brother treated me to a large vanilla cappuccino at the Starbuck's stand in the lobby.  He paid a little bit less than $7 for both cups of coffee.  Needless to say, it was delicious, and I have been drinking Starbuck's vanilla cappuccino ever since.

This afternoon, October 2024, twenty-three years later, I purchased a large vanilla cappuccino at the new Starbuck's location that just opened up about 30 minutes from the house.  I paid $6.75 for that cup of coffee using a gift card.  Needless to say, it was delicious.

MYPOINT:  My Starbuck's coffee, same size, 23 years later has doubled in value +/- a few pennies.

The Rule of 72...

If you take the current interest rate that leading institutions are paying you to invest your money with them, and divide that % into 72, the answer will approximate that number of years it will take your money to DOUBLE IN VALUE at that interest rate.

For example...

interest rate is 10%

72 divided by 10 equals 7.2 years

Here is a spin on the rule of 72...

Take the inflation rate and divide that % into 72 and the answer will approximate the number of years that it will take the cost of living to double at that rate...

So, if the inflation rate is 3%

72 divided by 3 equals 24

Now...

My large cappuccino coffee from Starbucks pretty much double in value after 23 years, +/- a month or two.

Therefore, one could conclude that our inflation rate while going up and down over the last 23 years has averaged about a 3% annual rate of inflation...  of course, this is totally based upon one consumer item and may not be indicative of our economy as a whole...

Still, it is interesting that it worked out this way and does somewhat reinforce the Rule of 72, at least in my opinion.