Numerical input for emphasizing how inflation affects everyone and should, therefore, be factored into every calculation of our financial plan:-
1. 5% inflation can widen nominal and real income gap to almost 20% in just five years.
2. In 40 years, difference will widen to 80%, so, don't plan future on nominal values.
3. FD/PO returns of 7-8% will not be able to match price rise, hence 15-20% min. equity exposure is needed to beat annual inflation.
4. 6% inflation will reduce purchasing power of 1 crore insurance cover to 40 lakh in 15 years.
5. 8% inflation for 5 years reduces:-
a) Cash of 1 lakh to 68,000
b) Home (9% returns) of 69 lakh to 47 lakh
c) Jewellery (9% returns) of 3.8 lakh to 2.6 lakh
d) Stock/MF (10% returns) of 5.6 lakh to 3.8 lakh
e) Bond/FD (8% returns) of 3 lakh to 2 lakh
5. 8% inflation for 5 years increases the outstanding home loan (21 lakh for 15 years at 9% interest) of 11 lakh to 17 lakh.
6. Also, 10% education inflation and 12% healthcare inflation further affect our investment's purchasing power.
7. Rule of 70 is useful for predicting future buying power - by dividing 70 by current inflation - to know how fast our investment will be reduced to half its present value.
8. It is even useful for retirement planning, as it affects how we plan our withdrawals, since 7% inflation will reduce our corpus to half in 10 years.
9. Due to 7% inflation, our current expenses will double every 10 years.
10. Due to even 6% inflation, value of our 1 crore corpus will shrink to 54 lakh after 10 years, 29 lakh after 20 years, and 16 lakh after 30 years.
1. 5% inflation can widen nominal and real income gap to almost 20% in just five years.
2. In 40 years, difference will widen to 80%, so, don't plan future on nominal values.
3. FD/PO returns of 7-8% will not be able to match price rise, hence 15-20% min. equity exposure is needed to beat annual inflation.
4. 6% inflation will reduce purchasing power of 1 crore insurance cover to 40 lakh in 15 years.
5. 8% inflation for 5 years reduces:-
a) Cash of 1 lakh to 68,000
b) Home (9% returns) of 69 lakh to 47 lakh
c) Jewellery (9% returns) of 3.8 lakh to 2.6 lakh
d) Stock/MF (10% returns) of 5.6 lakh to 3.8 lakh
e) Bond/FD (8% returns) of 3 lakh to 2 lakh
5. 8% inflation for 5 years increases the outstanding home loan (21 lakh for 15 years at 9% interest) of 11 lakh to 17 lakh.
6. Also, 10% education inflation and 12% healthcare inflation further affect our investment's purchasing power.
7. Rule of 70 is useful for predicting future buying power - by dividing 70 by current inflation - to know how fast our investment will be reduced to half its present value.
8. It is even useful for retirement planning, as it affects how we plan our withdrawals, since 7% inflation will reduce our corpus to half in 10 years.
9. Due to 7% inflation, our current expenses will double every 10 years.
10. Due to even 6% inflation, value of our 1 crore corpus will shrink to 54 lakh after 10 years, 29 lakh after 20 years, and 16 lakh after 30 years.