Cost of Inflation on Savings Calculator
Inflation silently erodes the purchasing power of your money. Use this tool to calculate how much your future savings will actually be worth in "today's dollars" and visualize the total loss caused by rising prices.
Understanding the Impact of Inflation on Your Long-Term Savings
Inflation is often described as the "hidden tax" that silently reduces the value of your hard-earned money over time. When you save $10,000 today, that same amount of money might only buy $6,000 worth of goods 20 years from now. This calculator helps you visualize that gap and plan accordingly.
How to Use This Calculator
To get an accurate picture of your financial future, follow these steps:
- Initial Savings: Enter the lump sum you currently have in your account.
- Annual Contribution: If you add money monthly, multiply by 12 and enter it here.
- Inflation Rate: Historically, inflation averages around 2% to 3% in developed economies, though it can spike higher.
- Nominal Growth Rate: This is the interest or return you expect from your bank or investments before inflation is considered.
The Real Value Formula
The calculation uses the formula for future value of an annuity combined with the inflation adjustment formula:
Real Value = Nominal Future Value / (1 + Inflation Rate)^Years
Why It Matters
Ignoring inflation is a common mistake in retirement planning. If your bank account pays 1% interest but inflation is 3%, you are effectively losing 2% of your wealth every year. To grow your wealth, your "Nominal Growth Rate" must exceed the "Inflation Rate."
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