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 Ask the Dollar Diva By Dorothy Rosen • Bankrate.com

The impact of saving early

Dear Dollar Diva,
I have been teaching my children about compound interest and investing, with emphasis on the magic of compounding. Where can I find a chart that will help me illustrate the long-term impact of saving early?

The magic of compounding is illustrated in the Diva's "Save just a little and retire like royalty." You'll find a link to a chart that illustrates how much you'll have in 40 years at various savings levels and rates of return.

Rule of 72

The Rule of 72 is a very user-friendly tool for investors, and your budding millionaires should learn about it. Divide 72 by an interest rate and voila, that's how many years it takes to double your money. It's a quick-and-dirty approximation, and you don't need a computer to do it. The following chart shows approximately how many years it takes to double your money at 5 percent, 10 percent and 15 percent:

• 72 divided by interest rate = Number of years to double your money
• 72/5 = 14
• 72/10 = 7
• 72/15 = 5

You can use the Rule of 72 to answer the question, "How long will it take to become a millionaire if I have \$10,000 in a mutual fund earning 10 percent annually?" It will take you almost 50 years to accumulate your first million dollars, and only seven for that million to double. The more you kick in upfront, the sooner you'll become the "Millionaire Next Door."

 Mutual fund earnings chart Year Amount in mutual fund 2000 \$ 10,000 2007 \$ 20,000 2014 \$ 40,000 2021 \$ 80,000 2028 \$ 160,000 2035 \$ 320,000 2042 \$ 640,000 2049 \$ 1,280,000 2056 \$ 2,560,000

-- Posted: June 1, 2000

-- Posted: June 1, 2000

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