Inflate the cost of the goal and then start saving regularly to avoid any shortfall in future.
If you wish to save Rs 1 crore, there are many SIP calculators or monthly savings calculations that may help you to know how much you need to invest on monthly basis. For example, you can save Rs 1 crore by investing Rs 10000 each month for 20 years, at an assumed growth rate of 12 per cent annually.
But, there’s an important element that you might be ignoring or giving it a pass. Yes, the role of inflation should not be undermined especially over a longer time frame. Inflation eats into the purchasing power of the rupee and the worth of every rupee keeps decreasing over time. Simply put, 20 years back, you could have purchased a lot more than what you are able to buy with Rs 1 crore today.
Therefore, even after saving for 15, 20 or 30 years if you are able to accumulate Rs 1 crore or a higher amount, the actual worth of it at that time will be much lesser.
Assuming an inflation rate of 5 per cent, the worth of Rs 1 crore after 15 years is about Rs 48 lakh! And, as the time horizon increases, the value falls further. After 20,25 and 30 years, the worth of Rs 1 crore will be about Rs 37.68 lakh, Rs 29.53 lakh and Rs 23.13 lakh respectively assuming an average inflation rate of 5 per cent.
Remember, while general inflation in the economy may be around 5-6 per cent, the education and medical inflation is considered to be much higher. Inflation, therefore, plays an important role in planning your investments, especially those which are long term in nature such as kid’s education, retirement.
The solution lies is to save an amount that is inflation-adjusted. For that, you have to inflate the cost of the goal and then arrive at the requirement. Thereafter, start SIP to save towards the inflated cost of the goal.
Let us say, after 20 years you want to send your child for higher education which costs Rs 15 lakh today. Assuming inflation of 7 per cent, the cost of the course may shoot up to Rs 40 lakh. So, start saving Rs 8000 every month to accumulate Rs 40 lakh ( not Rs 15 lakh) and achieve the goal comfortably.
Similarly, work out the numbers for each of your long term goals and start saving the required amount. It’s better to save the right amount rather than fall short of a few lakhs even after religiously saving for the goals. Incidentally, as per the recent data released by the government, the retail inflation in India has surged to 6.30 per cent in the month of May 2021, over and above the RBI threshold of 6 per cent! Time to make some of the right money moves taking inflation into account.