We often talk about taxes, market ups and downs on investment. But, let’s rarely talk about the effect of inflation on the value of money. The truth is that due to inflation, the value of your money decreases something every day. Therefore, if you want to prepare a big fund for post -retirement expenses and other such needs, then you have to keep in mind the effect of inflation.
Inflation means an increase in goods and services prices. For example, if the price of an egg is 6 rupees today and the price is Rs 7 next year, then it is the effect of inflation. The price of an egg in a year is 6 to 7 rupees means that its price has increased by 15 percent in a year. Most things and services prices continue to rise over time. The reason for this is inflation.
Generally we do not pay much attention to inflation. But, for a long time it reduces the value of our money significantly. Today, you will be able to buy very little after 10-20 from 1 crore rupees. If the rate of infection is considered to be 7 per cent annually, then the value of Rs 1 crore today will be reduced to just Rs 25.84 after 20 years. This means that if you want to prepare a fund of Rs 1 crore for retirement after 20 years, then you will have to plan about 4 crore rupees then.
There are many such expenses, which will be manifold after 20 years. For example, if the school fees are Rs 1 lakh annually, then after 20 years it will be Rs 3.87 lakh. Today, if a surgery is spending Rs 5 lakh, then after 20 years you will have to spend 19.35 lakh rupees. If the expenses of your family today are 50 rupees every month, then after 20 years it will be Rs 1.93 lakh. These figures are shocking. But this is true.
The question is, what are the measures to neutralize the effect of inflation?
1. just saving will not work
If you only do savings, then the value of your money will decrease every day. If you want to increase the value of money instead of decreasing, then you will have to invest money in those investments originals, so that the returns to get are higher than the rates of infection. For example, if you keep money in a bank savings account, then you get 3.5 percent interest on it. If the rate of infection is 5 percent, it means that the value of your money is decreasing daily.
2. Invest money in the right place
Your focus should be on investing in more returned investment options. For example, the average return of the equity scheme of mutual funds is about 10–12 percent in the long term. This means that if you invest in the scheme of mutual funds in the long term, then you will not only be able to neutralize the effect of inflation but will also increase the value of your money.
