The government of every country is worried about the effects of inflation on the economy. But if you think, the mumbo jumbo about inflation is something for the government to rack their brains on, you are digging your own grave. It’s no empty rhetoric. To understand, read on.
With time, inflation erodes the value of one’s savings. In other words, it reduces the value of goods, and services your money can buy in future. In simple words, price rise leads to this effect. Therefore, one has to disproportionately save/invest for the future in order to maintain today’s lifestyle. The inflation calculator is a big but underrated friend.
Consider, for a moment, your monthly expenditure is Rs 25,000 today. But you need to save for tomorrow, the express objective being to meet your expenditure 25/30/35 years from now. Now, think that the rate of (retail or Consumer Price Index-based) inflation is 5% annually.
With this assumption, let’s see how much you would need to consumer the same goods and services 25 years later. You won’t believe, that you need to spend nothing less than Rs 84,658 to consume the same good/services, which means you will have the same standard of living.
If you take the calculation to 30 years hence, the amount you will need every month is Rs 1.08 lakh. The amount might seem a lot more in today’s standard but it won’t allow you to lead a better way of life than you are doing today.
Needless to say, if the rate of inflation increases, you will need more and more money in the future to stay at the same level. This has got tremendous implication for your retirement planning.
If you earn Rs 25,000 at the age of 30, you would need to save an amount of money which will given you returns of nothing less than Rs 1.08 lakh a month at the age of 60, if you want to maintain the same standard of living at retirement. Therefore, when making retirement planning, don’t depend on the nominal amounts that different calculators show up. Also, include the inflation calculator to know the true value of your returns 30/35-40 years later. Else, your stanrad of living will be severely compromised.
