THE VIRGINIAN-PILOT 
              Copyright (c) 1995, Landmark Communications, Inc.

DATE: Tuesday, November 28, 1995             TAG: 9511280002
SECTION: FRONT                    PAGE: A12  EDITION: FINAL 
TYPE: Editorial 
                                             LENGTH: Short :   47 lines

RULE OF 72 MONEY MAKES MONEY

Everyone knows that $100 spent for a consumer item like a coat is money gone and that $100 properly invested will grow.

Yet Americans save far less money than do residents of other industrialized nations. Given a pay raise, we're more likely to jack up our standard of living a notch than to save money for a rainy day or retirement. In short, our saving habits stink.

For whatever it's worth, there's a simple little device that demonstrates how fast your money could grow - if you'd just refrain from spending it all.

The device is called the Rule of 72, and it is an absurdly simple method for calculating how long your money will take to double at different annual interest rates. By dividing the annual interest rate your money can earn into 72, you get the number of years your money will take to double.

For example, if your money earns 6 percent per year, it will double every dozen years (72 divided by 6).

You may ask, How can a 6 percent interest rate double my money every dozen years? Well, if you start with $100 earning 6 percent interest per year, you naturally earn $6 in interest the first year. That interest now earns interest, and then that interest earns interest. After six years, you've earned $42 in interest; after 12 years, $101 - bringing your total to $201. In another 12 years, your original $100 investment will have grown to just over $400.

At 8 percent, your money would double every nine years; at 12 percent, every six years; at 18 percent, every four.

The Rule of 72 works in reverse, as well. To calculate the interest rate you'd need to double your money every 12 years, divide 72 by 12 and get 6 percent.

The world is divided into people who have money earning money and people who owe money and pay interest. The advantages of being in the first group, rather than the second, are clear.

Adults and children probably receive more than 100 messages to spend for every message to save, and the desire is strong to keep up with the Joneses. Still, financial counselors can help you form a plan for moving into the group whose money earns money. by CNB