Two questions, one calculator
Future cost: how much will something cost later? Use this to price a goal: a college degree, a car, your household's monthly budget in retirement.
Value of money: what will a sum of money really be worth later? Use this to check whether a "₹1 crore at maturity" promise is as big as it sounds.
The formulas
- Future cost = cost today × (1 + inflation)years
- Value in today's money = future amount ÷ (1 + inflation)years
A handy shortcut: divide 72 by the inflation rate to get the years in which prices double. At 6% that is 12 years. At 10% it is about 7.
Which inflation rate should you use?
India's headline inflation is measured by the Consumer Price Index, and the RBI's target is 4%, within a band of 2 to 6%. Your own inflation can differ a lot from the headline because you buy a different basket. For planning:
| What you are pricing | Rate many planners use |
|---|---|
| Everyday household expenses | 5 to 6% |
| Retirement living costs | 6 to 7% |
| Higher education | 8 to 10% |
| Healthcare | 8 to 10% |
When unsure, use the higher number. A plan that over-saves by a little is far better than one that runs short.
Worked examples
| Question | Answer |
|---|---|
| ₹1 lakh of spending today, in 10 years at 6% | ₹1.79 lakh |
| A ₹20 lakh degree today, in 15 years at 10% | ₹83.5 lakh |
| ₹1 crore received in 30 years, in today's money at 6% | ₹17.4 lakh |
That last line is why a 30-year insurance policy promising ₹1 crore needs a careful look.
Why this matters for your savings
If your money earns less than inflation after tax, it is shrinking in real terms even though the balance goes up. A savings account at 3% while prices rise 6% loses about 3% of buying power a year. For goals more than five years away, part of the money usually needs to be in assets that have historically grown faster than inflation, such as equity mutual funds, accepting that their returns go up and down. The goal planner builds inflation into the monthly SIP automatically.
Questions people ask
What will ₹1 lakh be worth in 10 years?
At 6% inflation, ₹1 lakh in 10 years will buy what about ₹55,800 buys today. Put the other way, what costs ₹1 lakh today will cost about ₹1.79 lakh.
What inflation rate should I assume for financial planning in India?
5 to 6% for general expenses, and 8 to 10% for education and healthcare, which have tended to rise faster. Use the higher end when in doubt.
How do I calculate the future value of money with inflation?
Divide the future amount by (1 + inflation rate) raised to the number of years. The calculator does this when you choose "What money will be worth".
How long does it take for prices to double?
Roughly 72 divided by the inflation rate: about 12 years at 6%, 9 years at 8% and 7 years at 10%.
Does inflation affect my SIP returns?
Yes. The real return is roughly the return minus inflation. A 12% return with 6% inflation grows your buying power by a little under 6% a year (about 5.7%).