How do I factor inflation into my long-term savings plan?

Inflation can have a significant impact on your longterm savings, as it erodes the purchasing power of your money over time. This means that the amount you save today may not be enough to cover your expenses in the future due to the rising cost of living.

To factor inflation into your longterm savings plan, it's important to consider the rate of inflation when setting your savings goals. You can use a simple formula to calculate the impact of inflation on your savings:

Future value = Present value x (1 + inflation rate)^number of years

For example, if you want to save Rs. 1 lakh for a goal that is 10 years away, and you assume an inflation rate of 3%, the future value of your goal would be:

Rs. 1 lakh x (1 + 0.03)^10 = Rs. 1,34,391

This means that you would need to save Rs. 1,34,391 today to have the same purchasing power in 10 years.

To stay ahead of inflation, it's important to invest your longterm savings in assets that have the potential to generate returns that outpace inflation over the long term. This may include a mix of stocks, bonds, and other investments that have historically delivered returns above the inflation rate. However, it's important to keep in mind that all investments come with some degree of risk, so it's important to assess your risk tolerance and investment goals before making any investment decisions.