We all normally read or watch news channel and one of most common news is about Inflation rate. But do we all know how this inflation affects us as an individual and how do we need plan our future. Having said that inflation does affect your standard of living and you need to think for your future keeping in mind the Inflation Rate.
What is Inflation: – In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time. We have provided the Inflation Rate Chart in India for past 25 years in our article Inflation Rate in India. Next question that everyone will have is how this percentage will be added into our future calculation.
Let’s take this simple example.
- A Person P earns a healthy 50K per month.
- How much money does he need to maintain the same living standards after 20 years?
- The average rate of inflation/price rise as the chart is coming around 8% (rounded off)
Here is the simple formula to calculate
Amount needed after X years = Amount today * (1 + inflation rate) ^ X
=50K * (1 + 8/100) ^ 20 = 50K * (1.08 ^ 20) = 233047 Indian Rupees
So whatever you bought with 50K now will costs 2.3 Lakhs 20 years from now(assuming 8% as inflation)
If the inflation rate increase by 1 percent only then the your per month income should be around 2.8 Lakhs. This will definitely Alarm you to think on your investments. Currently the bank interest rate in FD is also around 8 percent which indirectly suggests that you are not getting anything extra but actually you value of money will remain the same. You can refer to our article Money past, present and future to understand this. We have already talked about Investment Basis which will help you understand the basic investment technique that you can use and to plan your future.