Inflation plays a vital role in economic development, as too high inflation leads to a negative impact or the economy may suffer, but if the inflation is controlled, or we can say that it is at reasonable levels, then the economy may prosper. The main reason for the prosperity of the economy at a controlled or lower inflation rate is that consumers may have more money to buy goods and services, which ultimately leads to the collection of more sales taxes in the form of VAT and the modern tax form of GST (Goods and Services Tax).
Now the biggest question that an investor must ask themselves is whether the corpus of money they have invested or are currently planning to accumulate over the coming year will be sufficient to meet the future value of money and inflation percentage. For example, if an investor has Rs 1,00,00,000 or is planning to have the same amount as retirement savings, will Rs 1,00,00,000 be sufficient to meet the requirement after 10 to 20 years?
The answer is NO.
RULE Of 70, This is one of the best investment thumb rules, which helps investors identify the actual corpus or invested value after 10 to 20 years based upon the inflation percentage. To calculate or apply this thumb rule, investors should take the number 70 and divide it by the current inflation rate or percentage. Based upon my knowledge, whatever number arrives will definitely be half of what it is today.
How Calculation works:
Basis Rule 70: Consider the number 70 and divide it by the current inflation rate, which is 5.7%. Whatever outcome or number comes after dividing 70 by the inflation rate is the number of years when your wealth will be worth half of what it is today.
 |
| Rule 70 simplified |
If an investor invests or has a corpus of Rs 1 crore, with the help of Rule 70, he can get an idea of what his corpus value will be based on the current inflation rate after 10 to 20 years. So if we divide 70 by the inflation rate, which is 5.70%, the outcome will be 12.28, which is the number of years when the current invested amount will become half of the actual value. By that logic, an investor's Rs 1 crore will be worth Rs 50,00,000, or Rs 50 lakh, in 12 years.
Some of the bad financial habits which also may lead to reduction in future Corpus values are:
 |
| Habits which requires mindset changes |
Once Milton Friedman Said, "Inflation is taxation without Legislation"