.

Inflation eats into your returns! Here’s why to calculate the exact monthly savings amount

.

Long-term goals such as child education, marriage, home buying or one’s own retirement are impacted by rising inflation.

.

 With price rise, the purchasing power of the Rupee falls. Therefore, inflation may spoil your financial planning unless you account for it right at the beginning.

.

As an investor, inflation plays a spoilsport as it eats into the returns. The higher the inflation, the more the damage to your returns.

.

For example, if you expect your portfolio to generate a return of 8 per cent after taxes over the long term, and the annual inflation also remains around 8 per cent, your real return will be almost zero!

.

Therefore, when you plan your investments towards your goals, make sure you account for inflation.

.

 For example, if you are saving for child education after 21 years that costs Rs 25 lakh today, the inflated amount could cost Rs 70 lakh after 21 years, assuming a 5 per cent inflation rate

.

Thereafter, one has to invest to accumulate Rs 70 lakh and not Rs 25 lakh.

.

Similarly, if you are planning to save for retirement, first consider your monthly expenses at current costs.

.

Assuming a 5 per cent inflation rate, find out how your monthly expense will be after retirement.

.

This gives you the amount of inflated monthly expenses you would need to survive during your retired years.

.

hereafter, calculate how much you need to start saving from now till your retirement age to create a corpus that could provide you the inflated monthly amount.

.

Without knowing the exact monthly savings required, one should not venture into planning and savings for one’s retirement

.

Click below to see more web stories.