Manish has an excellent article on Jago Investor: How Inflation eats your money. What I was thinking – yes, you could save a constant amount today to try and reach an inflated adjusted goal tomorrow. Like in Manish’s article, he talks about Ajay who needs to meet a 20 year goal to plan for his daughter’s education, which would cost 4 lakhs today, but 8% inflation would cost him Rs. 18.64 lakh after 20 years.

That will take a monthly investment of Rs. 2,046 per month, he says, assuming you can get a 12% return per year.

But if Ajay starts after 10 years, he’ll have to invest Rs. 8,400 per month. Much higher, you think? Yet, with 8% inflation, **that is worth just 3,890 worth of today’s money.** Not quite as much higher – and probably just as affordable.

But then, you are likely to get salary hikes, at least to the same level as inflation. If you don’t, you’re retired – in which case you’re not saving. So let’s assume that you save a constant percentage of your income – even though nowadays, you save a much higher percentage of your salary as you grow older. So the amount you save per month increases every year, by about 8%, the inflation rate you assume your expenses grow by.

That means to achieve this goal of 18.64 lakhs in 20 years, with an average increase per year of 8%, **you need to invest just Rs. 1,100 per month.**

And then you may decide that heck, I’ll pay in only for 10 years, and let the funds grow for the remaining 10 years. **For that, you only need Rs. 1,826 per month.**

Your burden increases every year, but so does inflation, and in that sense, your income. The question, rightfully, is: how can you calculate the total money you need to invest for a certain goal, with an “inflation linked investment” pattern? Stay tuned, I’ll post a calculator soon.

>+5 insightful.

There is a typo in the last sentence of the first paragraph, though. You missed the unit (Lakh).

"…which would cost 4 lakhs today, but 8% inflation would cost him Rs. 18.64 [lakh] after 20 years."

BG