Srikanth Matrubai is known as the WEALTH ARCHITECT. He is practitioner of Wealthy Habits and author of Amazon Best Selling Book DON'T RETIRE RICH.
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Sunday, May 13, 2018
BEWARE OF LIFESTYLE INFLATION
INFLATION impact is undeniable and it is a bigger killer than even Inflation!
“I know Inflation.....but whats this new
explain with an example
Mr.AtiBhudi : “My present Monthly expenses is about
Rs.20,000. Prof.Kent, can you help me understand how much I require in 30 years
from now, when I am 60?”
Prof.Kent: “Thats a very interesting question,
Mr.AtiBhudi. If we calculate at 7% inflation (which is average of last 38
years), our expenses will DOUBLE EVERY 10 YEARS. So, that means, you will be
needing about Rs.1,60,000 per month at the age of 60.” “But” Prof.Kent
continued “I have not calculated Life
Style Inflation here”
Mr.AtiBhudi : “What is this life style
inflation? Never heard of it!”
Prof.Kent: “Ha....Let me explain. Few years ago, we used
to have VadaPav for Rs.5 and today we can get the same VadaPav for about Rs.15.
But, tell me how many times you went and had a Burger instead of Vadapav? Many
times...isnt it? And this Burger cost STARTs from Rs.50. This jump from Vadapav
(Rs.15) to a Burger (Rs.50) is called LIFE STYLE INFLATION”
Professor continued “This is just one example. There are many
such happening to you without you realising.
Like, earlier you were thrilled to be going to GOA every couple of years, but
now you want to explore Thailand, Sri Lanka.....isnt it??
And of course, upgrading your iPhone!!!
The Biggest reason why LifeStyle Inflation happens is because YOU “COULD” and
not because you “NEED” TO!!!”
grumbled : “Oh no, so you mean to say I
will be requiring MORE than Rs.1.6 lakh per month?!”
Yes....you guessed it Right Mr.AtiBhudi”
: “Okay....now tell me how much life
style inflation should I consider?”
Prof.Kent: “Now....thats very confusing as there is no
set Lifestyle Inflation figures as such. But, having said that....we can check
with Lifestyle Products like Branded Shoes, Jewellery, Watches, Car, Bike,etc and safely
assume the Lifestyle Inflation to be around 10%”
continued : “With this 10% assumed
Lifestyle Inflation, your Expenses will be DOUBLED EVERY 7 YEARS (and not 10
years as assumed earlier), which in turn means....you require about Rs.3.5 Lakhs per month at your
age of 60!
And, you will be a needing a corpus
of (in simple terms.....Rs.3,50,000 per month * 12 months & 25 years) Rs.10 CRORES as your RETIREMENT
was shellshocked “Oh My God!!!
Prof.Kent...I can never hope to retire comfortably then”
Prof.Kent:”Dont get depressed Mr.AtiBhudi. You can
retire comfortably. Its not Rocket Science. You will be needing to invest just Rs.18,000 per month till you retire (that is...for the next 30
years) to reach the targeted Rs.10 crores!!! (The Investment Value will be
Rs.64.8 lakhs) “
jumped in disbelief : “WOW!!! Only
Rs.18000 per month. How come so less can get me such a huge huge amount of
laughed and said “That, Mr.AtiBhudi, is
called the POWER OF COMPOUNDING”
Mr.AtiBhudi : “Prof.Kent, lets start a
SIP of Rs.18,000 for my Retirement Kitty right now!”
All the Best,
Await my article on HOW TO AVOID LIFESTYLE INFLATION and more on this topic in coming days.