Do you Know the what rule of 70 tells you about inflation ?
Inflation is a dangerous animal
We all work hard to make a living. The money we earn is needed to pay the bills, fulfill our needs and wishes and investing for the future.
However there is something called inflation that comes between our money and our financial goals.
Inflation is the rate at which our money keeps losing its buying power.
In other words it can also be seen as the rate at which things are getting more expensive.
For most people the rate of increase in your salary or income is less than the rate at which your financial needs grow.
So you need to manage your funds better.
Looking at the rule of 70
Rule of 70 is a good way of looking at the the time frame in which inflation eats up your money and reduces your buying power by 50%
The rule of 70 says divide 70 by the rate of inflation the the result would be the number of years in which your money would lose its value by 50%
Suppose the rate of inflation is X then we are looking at a figure
70/(X)
For a more practical calculation let us say rate of inflation is 7%
This means applying the rule of 70 we get
70/(7)= 10
The number we get is the number of years in which your money would become half in value.
Thus if you hold $1000 today its value would be $500 interns of its buying power 10 years down the line.
Inflation is an integral part of any economy
This means money keeps losing its value and thus we have to invest in such a way that we make enough money in terms of the returns to cover this loss of value so that we can live and maintain the same lifestyle that we are living in today.