Inflation

I would like to finish with what Buffett say on this subject.



“It makes no difference to a widow with her savings in a 5% passbook account whether she pays 100% income tax on her interest income during a period of zero inflation or pay no income taxes during years of 5% inflation. Either way she is ‘taxed’ in a manner that leaves her no real income whatsoever. Any money she spends comes right out of capital. She would find outrageous, a 100% income tax but doesn’t seem to notice that 5% inflation is economic equivalent.”



http://wisewealthadvisors.com/2013/03/19/cyprus-cruel-tax

Inflation Adjusted Expense

How to calculate Inflation adjusted future expense ?

To plan and invest accordingly to the future requirements, one needs to calculate the inflation adjusted future expense compared to present expense.

Suppose your monthly expense is 5000 and the inflation rate is 7%, you want to know what will be the monthly expense after 15 years ? It can be done by using below formula.



Future Amount =Present expense amount * (1+inflation%)^number of years

                        = 5000 * (1+7%)^15 = 13,795


13,795 is the amount you require per month after 15 years instead of present 5,000, with an inflation rate of 7%. If the inflation rate is more, the amount also increased accordingly

http://www.bemoneyaware.com/blog/understanding-inflation/

Inflation

http://www.mint.com/blog/trends/a-visual-guide-to-inflation/

How does inflation affect financial planning?

http://www.subramoney.com/2012/05/how-does-inflation-affect-financial-planning/