Before you start saving, it’s best to factor in inflation so that your expenses will rise above your goal.
When you start saving for your child’s education, it’s best to factor in inflation to get an achievable cost level. As the cost of education rises, the cost of popular courses today may not stay the same 1520 years from now. So you need to calculate the inflated cost of the target to invest the right amount to achieve the goal comfortably.
For parents, the future of their children is the most important wish of their life. You need to plan your savings and investments for the future, in which inflation is essential. The cost of higher education is increasing at a faster rate than normal inflation.
An engineering course that might cost around Rs 7 lakh today will cost you more than Rs 20 in 16 years, taking into account 7% inflation. Likewise, a diploma or any other course for further study that costs Rs 20 in today’s cost can become Rs 60 lakh after adjusting for inflation.
Therefore, before you start investing, use the formula below to determine the true impact of inflation.
Inflated Cost (IC) = Present Cost (PC) (1+r/100)n
where;
IC = Inflated cost of your goal
PV = Present cost of your goal
r = Inflation rate
n = Years left to reach your goal
The reason for the inflated cost calculation is that it will save you the right amount. If you ignore the impact of inflation, you will save less than you actually need. This means that there may be a shortfall after the goal is reached.
By saving Rs 850 per month, with an assumed annual growth rate of 12%, you can get Rs 5 lakh after 16 years, but after factoring in inflation you need 14.70 Rs. So you have to really invest Rs 2500 per month to get Rs 14.7 after 16 years.
To get Rs 1 crore after 15 years, with an assumed growth rate of 12%, you need to invest Rs 20,000 per month. You can use the Inflation Calculator and SIP Calculator to plan your investments and easily achieve your long-term goals.
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