MyMoney Online

Understanding inflation with the Rule of 72

The magical number 72 in the financial world can help you to get a better understanding of the value of your money in the future.

72 can very easily be used to establish values in the future with extraordinary accuracy.

Inflation is a measurement of the value of your money over time. The higher the consumer price index (CPI) the less your rand will be worth. That is the main reason why the Reserve Bank is mandated to keep the rate below 6%.

Let’s get an idea of how damaging a high inflation rate can be by using the rule of 72. If inflation is 6% then simply divide 6 into 72, and the answer 12 is the number of years your money will take to halve in value.

So inflation at 6% will halve the value of the rand in 12 years.

If inflation was allowed to reach 12% then 12 divided into 72 results in 6 years. So it will take 6 years for your money to halve in value.

The rule of 72 will help to understand why it is so important to keep inflation under control, and as low as possible. A little inflation is a good thing for an economy. However, if it is rampant then it will destroy an economy in no time. This is what happened in Zimbabwe a few years ago, when it reached a zillion percent.

This equated to money halving in value every hour. At the time it made financial sense to pay for a coffee at the local restaurant before having, it as it would cost double by the time you finished it.

Just by dividing the expected rate into 72 you get a very accurate picture of how your money is affected.

Listen to the audio below for more information...

Read more from Paul Roelofse at www.investforlife.co.za


Recommended

by NEWSROOM AI
Read More
How to pay up to 45% less tax (and save the SA economy while you’re at it)

How to pay up to 45% less tax (and save the SA economy while you’re at it)

The Money Show’s Bruce Whitfield interviews Darryn Faulds, a fund manager at Grovest Group.

9 tough questions you should never be afraid to ask your financial advisor

9 tough questions you should never be afraid to ask your financial advisor

Times are tough. Don’t spare her feelings! You must ask these questions of your advisor, implores Galileo Capital's Warren Ingram.

Hottest JSE-listed shares to buy, right now (by Arqaam Capital)

Hottest JSE-listed shares to buy, right now (by Arqaam Capital)

The Money Show’s Bruce Whitfield asks portfolio manager Ashraf Mohamed what he is buying right now.

What it'll cost to educate your kid abroad (and how much you must save a month)

What it'll cost to educate your kid abroad (and how much you must save a month)

Bruce Whitfield asks Galileo Capital Financial Advisor Warren Ingram about the cost of educating a child overseas.

Game over, Tencent (i.e. Naspers)? No, it remains a profoundly good longterm buy

Game over, Tencent (i.e. Naspers)? No, it remains a profoundly good longterm buy

It’s not the beginning of the end of Tencent, says portfolio manager Francois Strydom, despite it losing R3.2 trillion in value.

Inflation remains (barely) on target. Interest rate decision this afternoon

Inflation remains (barely) on target. Interest rate decision this afternoon

Annualised consumer price inflation was, as expected by most economists, 5.9 percent in October, exactly the same as in September.

Popular articles
Sucking titties does not cure cancer, it detects it - Lillian Dube

Sucking titties does not cure cancer, it detects it - Lillian Dube

Actress, Cancer survivor and activist Lillian Dube shares why she decided to be a cancer activist.

Yet another wet and cold weekend for Gauteng warns weather service

Yet another wet and cold weekend for Gauteng warns weather service

Gauteng residents are warned to brace themselves for another weekend of heavy rain, possible hail and damaging winds.

[Watch] SA choir stuns with isiZulu cover of Ed Sheeran’s ‘Shape of You’

[Watch] SA choir stuns with isiZulu cover of Ed Sheeran’s ‘Shape of You’

Khabazela shares some of the most popular tweets, posts, and videos on 'What's gone Viral'.

10-year-old maths whiz Sbahle Zwane gets a scholarship from Curro school

10-year-old maths whiz Sbahle Zwane gets a scholarship from Curro school

Azania Mosaka catches up with Sbahle Zwane's mother to hear about developments with his schooling.

'It's unacceptable that government officials pay R75 for luxury apartments'

'It's unacceptable that government officials pay R75 for luxury apartments'

IFP national spokesperson Mkhuleko Hlengwa says the party is calling for a review of these rates that are a cost to taxpayers.

Getting drunk improves creative problem solving - Harvard Business School

Getting drunk improves creative problem solving - Harvard Business School

Bruce Whitfield asks branding and advertising expert Andy Rice about a peculiar study that has creatives reaching for the tequila.