If you are planning to save Rs 1 crore, there are many SIP calculators or monthly savings calculations which can assist you to know how much amount you must invest every month. For instance, you can save Rs 1 crore by investing Rs 10000 every month for 20 years, at a supposed growth rate of 12 percent per year.
However, there’s a significant factor that you may not pay attention to in the calculations. Indeed, the impact of inflation cannot be ignored especially when the calculations are long-term. Inflation reduces the purchasing power of money and the worth of every money keeps falling in the long run. Just imagine 20 years in the past you could have purchased much more than what you can purchase now with Rs 1 crore today.
Hence, even if you save for one or two decades, if you can assemble Rs 1 crore or a greater sum, the real value of it at that time will be much lower.
Supposing an inflation rate of 5 percent, the value of Rs 1 crore after 15 years is around Rs 48 lakh, and over time, the value will decrease even more. After 20,25 and 30 years, the value of Rs 1 crore would be around Rs 37.68 lakh, Rs 29.53 lakh, and Rs 23.13 lakh respectively at a supposed 5 percent rate of inflation.
One must keep in mind even if the inflation rate is 5-6 percent in the economy, the inflation rate in education and medical will be higher. Hence, inflation is a significant factor that affects your investment plans, predominantly the long term in plans like children’s education, retirement.
The way out of this problem is to plan your savings by adjusting them to the inflation rate. To do that you have to add the inflation rate to the amount of the savings plan. After that, you can start SIP to save for the inflation-adjusted amount.
Let us assume, in the coming two decades you plan higher education for your child which costs around Rs 15 lakh at present. Supposing the inflation rate to be 7 percent, the cost of the course may rise up to around Rs 40 lakh. Hence, you can start saving Rs 8000 per month to assemble around Rs 40 lakh and assemble the plan with ease.
In the same way, you can plan your long-term goals by adding up the inflation value to the present value.
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