Six numbers that
explain most of personal finance.
Memorize these and you understand compound interestcompound interestEarning interest on your interest. Your returns reinvested to earn even more returns over time.Full definition, why starting early wins, the savings-rate tradeoff, and what a million dollars actually means. The math is not complicated. It just has to be understood deeply.
$1 at 7% real for 40 years becomes $15. $500/month at 7% for 40 years becomes $1.3M. Starting at 22 vs 32 with the same contributions produces roughly double the outcome at 62. A $1M portfolio at 4% withdrawal generates $40K/year indefinitely. The savings ratesavings rateThe percentage of your income that you save and invest. The single most powerful lever in building wealth.Full definition determines years to financial independence more than the investment return does.
Personal finance is not complicated at its core. Most of it reduces to six numbers. Understand these and the strategy follows.
Number 1: The Rule of 72
Divide 72 by your expected annual return. The result is how many years it takes to double your money.
- At 7% real return: 72 ÷ 7 = 10.3 years to double
- At 10% nominal: 72 ÷ 10 = 7.2 years
- At 1% savings account: 72 ÷ 1 = 72 years
- At 24% credit card APRAnnual Percentage Rate (APR)The yearly cost of borrowing money, shown as a percentage.Full definition: your debt doubles every 3 years verify×DON'T TRUST, VERIFYClaim: Average credit card interest rate in the US is approximately 21% APR (Federal Reserve G.19, Q1 2026).Verify at: Federal Reserve G.19 Consumer Credit ↗Monthly release tracks average commercial bank rates on credit card accounts.
This is the number that makes the credit card balance graphic. It is also the number that makes "start early" obvious.
Number 2: The 40-year dollar
$1 invested at 7% real return for 40 years = approximately $15 (1.07^40 = 14.97). $1 invested at 10% nominal for 40 years = approximately $45 (1.10^40 = 45.26).
- $10,000 invested at 22 at 7% real = $149,745 at 62
- Same $10,000 invested at 32 at 7% real = $76,123 at 62
- Ten years costs $73,622 on a single $10,000 investment. Not because you invested more, but because you started earlier.
Number 3: The $500/month number
$500/month invested at 7% real:
| YEARS | BALANCE |
|---|---|
| 10 years | $86,400 |
| 20 years | $259,000 |
| 30 years | $566,000 |
| 40 years | $1,312,000 |
$1,000/month at 7% real for 30 years: $1,130,000. The number most people remember: $500/month for 40 years at 7% real = over a million dollars.
Number 4: The 10-year penalty
Starting at 22 versus 32 with identical contributions. Same $500/month. Same 7% return. Stop contributing at 62 in both cases.
Difference: $746,000. The cost of the first 10 years of contributions: $60,000 (120 months × $500). The compounding lost on those 10 years over the remaining decades: $686,000. The first decade of investing is the most valuable decade. This is why someone who starts at 22 and stops at 32 often ends up with more than someone who starts at 32 and never stops.
Number 5: The 4% rule
$1,000,000 portfolio. 4% annual withdrawal. $40,000/year, inflation-adjustedinflation-adjustedA dollar number redrawn after stripping out the effect of rising prices, so you can compare what the money actually bought across years. A $30,000 salary in 1985 was worth more in real life than a $50,000 salary today.. Historically, the money lasts 30+ years verify×DON'T TRUST, VERIFYClaim: The 4% safe withdrawal rate originates in Bengen (1994) backtesting US stock/bond portfolios over rolling 30-year windows.Verify at: Bengen in Journal of Financial Planning ↗Also replicated and updated by the Trinity Study and Bill Bengen's subsequent work. See ERN SWR series ↗ for longer horizons and failure cases..
- $40,000 annual expenses = $1,000,000 target (25x)
- $80,000 annual expenses = $2,000,000 target
- $120,000 annual expenses = $3,000,000 target
Adjust for longer horizons: 30-year retirement, 4% is fine. 50-year early retirement, 3 to 3.5% is safer (28x to 33x expenses). Adjust for reliable income sources: Social Security, pensions, and part-time income reduce the portfolio target.
Number 6: The savings-rate table
This is the most powerful single table in personal finance. Assumes 5% real return and a 4% safe withdrawal ratesafe withdrawal rateThe percentage of an initial portfolio value that can be spent in year 1 of retirement and adjusted for inflation thereafter without running out of money. The 4% rule is the original. verify×DON'T TRUST, VERIFYClaim: Years-to-FI derived from savings rate, assuming constant real return and constant savings rate, starting from zero.Verify at: Mr. Money Mustache, "Shockingly Simple Math of Early Retirement" ↗The original published-form of this table. Assumptions: spend all of non-saved income, invest all of saved income, 5% real return, 4% SWR. Actual numbers depend on starting balance..
Going from 10% to 20% savings rate cuts 14 years off your working life. Going from 20% to 30% cuts 9 more. The leverage is highest at lower rates. Your savings rate matters more than your investment return in the first two decades.
These numbers assume consistent investment at the stated return. They do not guarantee a specific outcome. They show the relationship between savings rate and time, which is the most important relationship in personal finance. Run your specific numbers in the Savings Rate to FI Calculator.
What to do with these numbers
- Memorize the 4% rule first.
- Calculate your FIRE number (annual expenses × 25).
- Calculate your savings rate.
- Find your row in the table.
- Work backward to what you need to change.
The math does not require a financial advisor. It requires consistency.
Related
- Federal Reserve G.19 Consumer Credit · federalreserve.gov
- Bengen in Journal of Financial Planning · financialplanningassociation.org
- Mr. Money Mustache, "Shockingly Simple Math of Early Retirement" · mrmoneymustache.com
- irs.gov
- ERN SWR series · earlyretirementnow.com
Last updated 2026-04-22. Not financial advice. Real-return and SWRSafe Withdrawal Rate (SWR)The share of a retirement portfolio you can spend each year, raising the dollar amount each year to keep up with rising prices, without running out of money over a 30-year retirement.Full definition assumptions are historical; past returns do not guarantee future returns.