Inflation and the Rule of 72

How do you figure out how long it will take for the Rand to halve in value at a particular inflation rate? Use the Rule of 72!

This remarkable "Rule" is very accurate, but is not mathematically exact.

Let's say that you expect inflation to average 7%. You have R1m under the matress. How long before it is only worth R500K in buying power?

You divide the number 72 by the inflation rate 72/7 = 10 years. Isn't that clever?

Say you expect inflation to average 9%, then your R1m will be worth only R500K in 72/9 = 8 years and after another 8 years it will only be worth R250K.

You have a property that is worth R2m now. When will it be "worth" R4m at 8% inflation? 72/8 = 9 years. Then you sell it and have to pay CGT on your "capital gain" of R2m or hang onto it for another 9 years and pay CGT on R6m!

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South African Institute of Chartered Accountants. Designation CA(SA)  Internationally Accredited Financial MediatorsIndependent Regulatory Board for Auditors. Designation RA<Engineering Council of South Africa. Designation Pr(Eng) Member of MENSA, the High IQ Society




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