Inflation erodes the value of your wealth. This fact continuously rings an ominous bell with all investment strategists. Believe me, if you treat inflation as some esoteric stuff that well-read economists or investment strategists understand. Even if you (rightfully) don’t understand the intricacies of the demon that government keep grappling with, you should definitely take it into consideration while planning your finances for the future.
In a sense inflation is a snake in the grass. It will keep lurking in the background and just when you start to think that your investment programme will build a considerable pool for you in future, you would discover to your dismay that the amount of money that looked quite hefty several years ago is not sufficient to allow you a comfortable lifestyle now. The bottomline is simple: you have to disproportionately save for the future to overcome the impact of inflation down the years and yet have a significant pool.
What is the value of Rs 1 lakh after 30 years?
Free online inflation calculators can help you in factoring in inflation for your financial planning. The answer to the above question depends on the rate of inflation. Let’s assume, the rate of retail inflation – the type of inflation the common man should be more concerned with – is 6% annually. The calculator will tell you that if you incur a cost of Rs 1 lakh a month to run your family, to maintain the same standard of living 30 years later, you will need Rs 5.74 lakh a month.
Calculations with inflation at 5% and 7%
If you are fortunate to have a lower rate of inflation – say 5% annually – you will need Rs 4.32 lakh a month after 30 years. Conversely, if the rate of inflation climbs to 7%, you would need to spend Rs 7.61 lakh a month after 3 decades.
What inflation means for your investments
Therefore, it means that if you are planning to comfortably lead a post-retirement life, you should plan your investments in such a way that they corpus would generate a monthly amount of Rs 5.74 lakh a month to sustain the standard of life that you lead now with Rs 1 lakh a month.
With inflation is turning out to be an ominous challenge, you must know why you should factor it in while making long-term financial planning. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
