Inflation and Your Finances: What you Need to Know to Plan for the Future

Inflation is like that proverbial stress capsule, chipping away at our hard-earned savings and causing a dip in their value over the long run. We’re sure many individuals would have had visions like these when they thought of inflation and its impact on their savings. In this context, it should be mentioned that the threat of inflation is real and growing every year. Things will cost a gazillion times more than what they cost today. Here’s a look at how the future will pan out in terms of costs and also how you can mitigate the threat with suitable investment options.

What Will Expenses Look Like In 2050?

We’re already in 2023, so a 2050 calculation is not off the mark. How will it be 27 years down the line? Here are some expenses that will naturally be costlier:

• Healthcare Costs- Based on recent trends, healthcare facilities could be even costlier by 2050. Take the example of a surgery or treatment procedure which costs Rs. 5 lakh today. Taking inflation rates at 6% in 27 years, it will cost a whopping Rs. 24.11 lakh.
• Education And Weddings Of Children- You may have budgeted around Rs. 30-40 lakh for your children’s education. A corpus of Rs. 30 lakh, if you require the same today, will be equivalent to a need of Rs. 1.44 crore in 2050. That is almost a five-fold increase! A wedding cost of Rs. 25 lakh today will also be Rs. 1.20 crore in 2050.
• Vacations- A vacation that costs Rs. 2 lakh today will cost around Rs. 9.64 lakh in 2050.
• Home Purchases- A home that you wish to buy for Rs. 60 lakh today will cost Rs. 2.89 crores in 2050.
• Car Purchases- A car priced at Rs. 20 lakh will cost Rs. 96.44 lakh in 2050.
• Monthly Costs- If you are spending Rs. 1 lakh each month now, then you will need Rs. 4.82 lakh in 2050 to maintain the same living standards.

Sounds worrisome? Not quite, if you plan your investments with care. Here’s how you can maximize your returns from strategic investments and beat inflation comfortably.

ULIPs- Future-Proofing Your Portfolio

Your working years will see you taking care of your monthly expenses. However, at the time of retirement, you will naturally require a sizeable corpus to meet future costs and take care of your family’s goals. In this context, you should consider investing in a ULIP policy to earn stellar returns over the long haul.

You can use a ULIP calculator to estimate your returns over a sustained duration and plan your monthly/annual investment accordingly. Here’s why ULIPs are your best bet:

1. Long-term investments in ULIPs can help you earn attractive and inflation-beating returns. The longer you stay invested, the more you gain from the power of compounding and unit cost averaging. The charges are also higher in the initial years and keep falling as you go ahead with the plan. You can also stay committed to riding out temporary market fluctuations en route towards building a massive corpus for the future.
2. ULIPs allow you to choose the funds you wish to invest in at the beginning of the policy. Allocate your investments between equity and debt based on your goals, risk appetite, and market conditions.
3. ULIPs also allow you to periodically switch funds throughout the policy tenure. In this way, you can safeguard your portfolio or maximize returns, depending on market movements.
4. You also get life coverage throughout the policy’s tenure, which means that your family members will be financially secure even in your absence
5. ULIP premium payments are eligible for tax deductions up to Rs. 1.5 lakh under Section 80C every year. The maturity proceeds are also eligible for exemptions under Section 10 (10D) if the annual premiums are less than Rs. 2.5 lakh.
6. You can get exposure to more equity initially when you have lower risks and gradually move towards higher debt when you move nearer to retirement

If you invest Rs. 2 lakh annually in a ULIP policy for 20 years and stay invested in a disciplined manner, then you can amass a corpus of Rs. 1.26 crore, assuming a return of 10% per annum. If you increase your investment to Rs. 2.5 lakh, which puts you in the tax-exemption zone, then you can expect to build a corpus of Rs. 1.58 crore by investing Rs. 50 lakh over a sustained duration.

Hence, this is one way for you to start future-proofing your investment portfolio for the future. Have a clear idea of the corpus that you wish to build and start as early as possible to benefit from compounding. To give you an idea, the same investment with the same variables will yield Rs. 4.52 crore if you stay invested for 30 years. Choose your ULIP after doing your homework on the coverage, premium amount (whether you can afford it), expected returns, fund choices, and other crucial aspects.