This inflation calculator adjusts the purchasing power of a given amount of...show more instructions
How Does Inflation Affect Savings?
Your money will be worth less in the future due to inflation. In other words, the buying power of your dollars will fall over time.
How much of an effect does inflation have on your savings? How can you counteract the affects of inflation?
The Inflation Calculator can give you some insight into how inflation would have affected an amount of money in the past. Calculate inflation under a variety of scenarios and discover the consequences – without losing any money yourself.
How Inflation Works
Inflation is an increase in the overall price of goods and services in the economy over a period of time.
In the United States, the Bureau of Labor Statistics computes the consumer price index which is used to find inflation rates. The bureau states that the consumer price index “is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.”
The prices of goods and services generally rise with time – inflation occurs – and purchasing power goes down. For example, $100 in 1970 has the same buying power as $579.29 in 2011. $100 could buy more in 1970 than $100 in 2011.
How To Counteract The Affects Of Inflation
The negative affects of inflation are widespread – no investment is safe. However, the affects of inflation on your savings can be counteracted in three main ways:
- By investing your dollars – Instead of keeping your money in a simple savings account, invest in the stock market and real estate. Find investments that provide high returns while mitigating as much risk as possible.
- By saving more money – Paying off debt, raising your income, and lowering your expenses are all ways to save more money. Making regular deposits into your investments will help you counteract the affects of inflation.
- By accounting for the average annual inflation rate – Inflation has averaged between 3 and 4% from 1913 to 2013. Knowing this will help you account for the affects of inflation when forecasting retirement figures.
Never Forget Inflation
The goal of the Inflation Calculator is twofold. First, it helps you understand in real-world terms how historical inflation rates would have affected the purchasing power of an amount of money. Second, it should encourage you to always account for inflation when predicting future value.
Never forget the profound results inflation has on an amount of money. It matters.
Inflation Calculator Terms and Definitions
- Inflation – An increase in the overall price of goods and services in the economy over a period of time.
- Deflation – The downward price movement of goods and services in an economy.
- Consumer Price Index – The index of prices that consumers pay for goods and services.
- Dollar amount (USD) – The United States dollar amount that will be affected by inflation.
- Base year – The year in which the dollar amount will be compared to a future year.
- Result year – The future year to which the dollar amount of the base year will be compared.
- Buying Power – The purchasing power of an amount of money has to purchase goods and services.
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