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


702 welcomes all comments that are constructive, contribute to discussions in a meaningful manner and take stories forward.

However, we will NOT condone the following:

  • Racism (including offensive comments based on ethnicity and nationality)
  • Sexism
  • Homophobia
  • Religious intolerance
  • Cyber bullying
  • Hate speech
  • Derogatory language
  • Comments inciting violence.

We ask that your comments remain relevant to the articles they appear on and do not include general banter or conversation as this dilutes the effectiveness of the comments section.

We strive to make the 702 community a safe and welcoming space for all.

702 reserves the right to: 1) remove any comments that do not follow the above guidelines; and, 2) ban users who repeatedly infringe the rules.

Should you find any comments upsetting or offensive you can also flag them and we will assess it against our guidelines.

702 is constantly reviewing its comments policy in order to create an environment conducive to constructive conversations.

Read More
3 shares that’ll boost your wealth, if you buy now (by Cannon Asset Managers)

3 shares that’ll boost your wealth, if you buy now (by Cannon Asset Managers)

The Money Show’s Bruce Whitfield interviews Cannon Asset Managers Portfolio Manager Samantha Steyn.

6 tips on how to avoid overspending this festive season

6 tips on how to avoid overspending this festive season

The Money Show’s Bruce Whitfield interviews Galileo Capital Personal Financial Advisor Warren Ingram.

3 shares you’ll do well to buy this week (by Cartesian Capital)

3 shares you’ll do well to buy this week (by Cartesian Capital)

It’s Stock Pick Monday on The Money Show. Bruce Whitfield interviews Cartesian Capital CEO Anthea Gardner.

3 shares that’ll grow you wealth, right now (First Avenue Investment Management)

3 shares that’ll grow you wealth, right now (First Avenue Investment Management)

The Money Show’s Bruce Whitfield interviews investment analyst Nadim Mohamed.

3 shares that should do very well, if you buy them now (by FNB Securities)

3 shares that should do very well, if you buy them now (by FNB Securities)

The Money Show’s Bruce Whitfield interviews FNB Securities Head of Research Chantal Marx.

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
8 things you may not know about Jacques Pauw

8 things you may not know about Jacques Pauw

We thought we'd let you in on some facts about sought after, award-winning journo Jacques Pauw, author of The President's Keepers.

UCT students invent effective shower water-capturing device

UCT students invent effective shower water-capturing device

Shower Savvy is a Jerry can look-alike that one can stand on while taking a shower which stores up to 10 litres of grey water.

The President's Keepers: PDF version is tantamount to theft - Exclusive Books

The President's Keepers: PDF version is tantamount to theft - Exclusive Books

A PDF version of the book has been doing the rounds since Sars and the State Security Agency threatened legal action.

Falling out of love? Signs and stages of romantic disengagement

Falling out of love? Signs and stages of romantic disengagement

Can you love your partner, but no longer be in love with them? Dr Eve unravels stages of disaffection in romantic relationships.

Celibacy liberated me - Amanda Ndiki

Celibacy liberated me - Amanda Ndiki

Author Amanda Ndiki, celibate for 6 years describes her journey and how celibacy helped mend her sense of self.

Investing in increasingly wealthy Mauritius (Africa’s most functional democracy)

Investing in increasingly wealthy Mauritius (Africa’s most functional democracy)

Bruce Whitfield interviews Nikiwe Bikitsha, who is on a fact-finding mission in Mauritius courtesy of Standard Bank.

'The university degree is dead'

'The university degree is dead'

Flux Trends founder Dion Chang gives five reasons why he believes getting a degree is past its sell by date.

3 easy questions could bag you R2000!

3 easy questions could bag you R2000!

WIN R2000! But only if you can prove you're a whiz of the MTN Biz Quiz by answering the following three questions...

Blesserfinder: Matching you with a sugar daddy near you

Blesserfinder: Matching you with a sugar daddy near you

Is social trend Blesserfinder, where girls are allegedly matching up with rich 'benefactors' in exchange for sex, a real thing?