Any student of mathematics will tell you there is magic in numbers. There are endless patterns with numbers which will leave you scratching your head. For example, if you take the number 6 and multiply it by an even number, the last digit of the answer will be the same as the last digit of the multiplier – for example 6 times 4 is 24 or 6 times 18 is 108.
Of course, we all know about compounding interest, and some people consider it be one of the great wonders of the world. When it comes to investment, we have a handy little trick called the Rule of 72. This is a simple rule which tells you long it will take for your investment to double in value at a fixed rate of return. Just divide the number 72 by the fixed rate of return and the answer is the number of years it will take for your money to double. For example, at an interest rate of 2%, it would take 36 years to double your money. If interest rates were 10% it would only take 7.2 years!
One of the most powerful tricks is what I call the ‘Little and Often’ principle. It can be applied in many different ways. Whether you are saving, investing, paying off debt or transferring money from one currency to another, there are advantages in making small but frequent financial transactions. The key benefits are:
- Any negative impacts are much less severe
- There is less financial risk
- Transactions can be easily automated
- The value you receive will be averaged over time, whether that is an interest rate or a price per unit – a principle called ‘dollar cost averaging’
Mathematical principles can be put to good use to help you make the best financial decisions.