Mental Math and Money

Published on Sunday, March 01, 2009 in , , ,

MoneyWith the economy in the condition it's in, knowing about money will come in handy more and more. Here are a few quick mental math tricks that can help you get a better overall idea of some financial questions.

First, let's look a pay. It's common to know how much you make per hour, but when you try to figure it with hours per week, and account for vacations, it all seems to complicated to work out. The shortcut, however, is startlingly simple. Double your hourly pay, and then just multiply by 1,000 (just adding 3 zeroes will work in many cases), and you'll get your yearly pay! Do you make $9/hour? $9 doubled is $18, and multiplying by 1,000 gives us $18,000/year! $21.75 per hour? That's $43,500/year.

It's not hard to do this mentally, with a little practice. That same calculation also works backwards, as long as you work it backwards. If someone is making $250,000/year, get rid of the 3 zeroes at the end first, giving us $250, and the divide by 2, giving us $125/hour as the equivalent. These calculations assume that you work 40 hours a week, and take 2 weeks for vacation.

If you want to take these calculations to extreme, just for fun, Salary Money can take this all the way down to how much you make per second!

There is a similar quick mental math trick you can do for weekly expenditures. In this case, you simply halve your weekly amount, and then multiply by 100. $20/week? Half of $20 is $10, and multiplying by 100 gives $1,000/year. I usually spend about $75 on groceries each week, so I can easily see that $3,750 is what I can expect spend on groceries this year. As above, this assumes that normal expenditures don't apply during a two-week vacation period.

Probably one of the toughest things to calculate is interest. First, you have to determine if the interest involved is simple, continuous or compound, and you must understand the differences.

However, there is one well-known rule that makes it easy to calculate how long it will take you to double your money at a given interest rate. It's called the Rule of 72 (although there are those who believe it should be updated to the Rule of 76). All you have to do is divide 72 by the interest rate in question, and you'll get the approximate time required to double your money. Since 72 is so easily divisible by so many numbers (such as 1, 2, 3, 4, 6, 8, 9, 12, 18, 24 and 36), this calculation usually isn't difficult.

Dividing 72 by 5 might seem hard, but you consider that all you have to do is double the number and then divide by 10. 72 doubled is 144, and dividing by 10 gives us about 14.4 years to double at 5% annual interest. So, at 4% interest, your money would take roughly 18 years (72/4) to double. At 3%, though, it would take roughly 24 years (72/3) to double! If you've ever wondered why there's so much talk over seemingly small interest rate changes, now you know.

Note that, due to the complex nature of money, these calculations are all approximate. However, they're also time tested, so you can quickly get a general picture of your economic situations with these handy monetary mental math tricks.

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1 Response to Mental Math and Money

12:50 PM

What's the old joke about doubling your money?

Fold a note and it in creases

Ahem ...