After I posted about The Rule of 72, I realized I had forgotten to mention that The Rule can be used against you as well. Here are some examples of how you can use The Rule of 72 to find the time bombs in your financial situation.

Use the Rule of 72 to calculate the impact of inflation

For example, inflation is a constant concern of most investors. Everyone knows that a 3% rate of inflation is better than 5%, but either way, the number is small, so why worry, right?

Wrong!

At a 5% rate of inflation, the cost of goods and services double every 14.4 years (!). That means the college tuition that today is $5000 a year will cost your3 year old child $10,000 a year when he is off to college.

The Rule of 72 will tell you how much credit cards cost you

Just like you lend money at interest (in debt instruments like bonds) to make money, so do the credit card companies. Of course, they get better rates of return than you do. Ever wonder just how much that dinner you bought on credit really costs?

A $100 date with your wife, put on a credit card at 20% interest, will end up costing $200 if you don’t pay the card off in 3 and a half years or so (obviously, if you make payments and so on, it will take longer).

The Rule of 72 will show you at a glance how much that decision to borrow money will really cost you.