Inflation Calculator: It is said that change is the only constant thing in this world, and this holds true for inflation and the value of money as well. The value of the rupee keeps decreasing year after year due to inflationary impacts, meaning that what you can buy with a specific amount of money today will not be the same quantity you can buy with that same amount in the future.
Why understanding future value of money matters
Understanding the future value of money is crucial because it helps you determine what you will actually be able to buy with your savings in the future. If inflation is high, the value of your money decreases, meaning you’ll be able to purchase less with the same amount. Conversely, if inflation is low, your money will stretch further, allowing you to buy more. Knowing this helps you plan effectively, ensuring your savings will be sufficient to meet your future needs and goals.
Looking at the past, we see that inflation peaked at 12% in 2010. It began to ease from 2016, averaging around 4%, which is within the RBI’s tolerance band, until 2019. However, following the pandemic, inflation surged past 6% and stayed above this level for some time. Recently, inflation has fallen back below 4%.
Also read: Inflation calculator: What will be the value of Rs 1 crore after 10, 20, 30 years
Future value of Rs 1 Lakh: Projected impact of 4% inflation
Given the current inflation rate and the long-term target set by the RBI, which aims for a retail inflation rate of around 4% with a tolerance range of 2% on either side, we will assume a consistent inflation rate of 4% for our calculations. This will allow us to project the value of Rs 1 lakh over the next 20, 30, and 40 years, assuming inflation remains within the RBI’s target range.
Rs 1 lakh value after 20, 30 and 40 years
If we take an annual inflation rate of 4%, the value of Rs 1 lakh today would decrease to approximately Rs 45,800 after 20 years. It means that, what Rs 1 lakh can buy today will only be equivalent to Rs 45,800 in 20 years due to the compounding effect of inflation.
Extending the same 4% annual inflation rate, the value of Rs 1 lakh will further diminish to about Rs 23,500 after 30 years. This long-term perspective shows how inflation continues to erode purchasing power over an extended period.
Looking ahead 40 years, if inflation continues at an annual rate of 4%, Rs 1 lakh today will be worth roughly Rs 12,100. This dramatic reduction in value demonstrates how inflation can drastically impact the future purchasing power of your money.
In conclusion, understanding how inflation affects the future value of money is crucial for effective financial planning. As illustrated, the value of Rs 1 lakh today will drop over time due to inflation — coming to around Rs 45,800 after 20 years, Rs 23,500 after 30 years, and just Rs 12,100 after 40 years.