There’s a beautiful Indian folktale that teaches us about the power of compounding money.

A greedy raja convinced everyone in his province of rice farmers to give him their rice. He told them he would safely store it for them so that if a famine came, they wouldn’t go hungry. But when a famine did arrive, the raja kept the rice for himself to make sure he didn’t go hungry while his people starved. He even ordered a feast–as it seemed to him a raja should–and asked a servant to collect rice from the storehouses.

But when they were being carried back to the palace, one of the baskets was leaking, and a young girl collected it in her skirt. She gave it back to the raja and, as a reward, asked for only one grain of rice. The raja wanted to give her a bigger reward, so she asked that the grain of rice be doubled every day for thirty days. For the first few weeks, the girl didn’t receive much rice, but by the end of the thirty days, the storehouses were cleared out, and she returned the rice to the people.

Had the girl asked for a penny, then by the end of the thirty days, she would have had $5,368,709.12.

Even at realistic rates of return, the magic of compounding is still impressive.

And there’s a handy mathematical trick to let you know how long it will take for your money to double–the Rule of 72.

Let’s say you’re saving for college or to start a business or a down payment on a home and you have $50,000 and you’re wondering how long it will take that $50,000 to double to $100,000.

The Rule of 72 that states that any two numbers multiplied together that produce 72 will let you know how long you have to wait.

For example, if you can earn a 6% return, your money will double in 12 years (6x12=72); or if you can earn a 9% return, your money will double in 8 years (9x8=72).



This is a helpful yardstick to keep in mind; if the grand total of your retirement and non-retirement funds have not been doubling every 7-14 years, it’s a signal to investigate what’s dragging down your growth.

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