The cost of living has consistently risen, meaning that what seems like a large amount today will be significantly smaller in the future. For instance, while Rs 1 crore appears to be a good amount today, it may not have the same purchasing power in the future as inflation gradually erodes its value over time.
Inflation appears when prices for goods and services progressively rise which reduces the value of money over time. Even a low inflation rate can reduce the value of savings and investments over time; it is important to factor in inflation when setting long-term financial objectives. In fact, as SEBI-registered Research Analyst Jayesh Thakkar pointed out in a recent tweet that, Rs 1 crore could reduce to barely Rs 5.42 lakh in 50 years, demonstrating how inflation can steadily erode the value of money over time.
Jayesh Thakkar's tweet demonstrates at a steady 6 per cent inflation rate, Rs 1 crore may appear to be a hefty sum now, but its real worth decreases rapidly over 50 years. After 10 years, its value reduces to around Rs 55.84 lakh, which means a loss of Rs 44.16 lakh. In 20 years, it drops further to Rs 31.16 lakh, marking a total loss of Rs 68.84 lakh. After 30 years, the total amount drops to Rs 17.39 lakh, which represents a Rs 82.61 lakh loss.
The erosion continues with time. After 40 years, the value comes down to Rs 9.71 lakh, showing a loss of Rs 90.29 lakh. At last, after 50 years, Rs 1 crore is worth only Rs 5.42 lakh, representing a loss of Rs 94.58 lakh in initial value. The money we view as significant today may lose much of its value in the future.
His tweet effectively highlighted the long-term impacts of inflation on the value of money but it offers no practical guidance or management strategies. Also, it shows concern about the gradual erosion of value over time and the need to consider inflation when planning financial goals.
