Sunday, May 13, 2018

BEWARE OF LIFESTYLE INFLATION

LIFESTYLE INFLATION impact is undeniable and it is a bigger killer than even Inflation!

I know Inflation.....but whats this new term.....Lifestyle Inflation?”
Let me 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”

The confused 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

The 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??

The Biggest reason why LifeStyle Inflation happens is because YOU “COULD” and not because you “NEED” TO!!!”

Mr.AtiBhudi grumbled : “Oh no, so you mean to say I will be requiring MORE than Rs.1.6 lakh per month?!”
Prof.Kent: “ Yes....you guessed it Right Mr.AtiBhudi”

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%”

Prof.Kent 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 KITTY

Mr.AtiBhudi 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)

Mr.AtiBhudi jumped in disbelief : “WOW!!! Only Rs.18000 per month. How come so less can get me such a huge huge amount of Rs.10,00,00,000!!!!??”

Prof.Kent laughed and said “That, Mr.AtiBhudi, is called the POWER OF COMPOUNDING

Excited Mr.AtiBhudi : “Prof.Kent, lets start a SIP of Rs.18,000 for my Retirement Kitty right now!”

All the Best,
Srikanth Matrubai
SriKavi Wealth

Await my article on HOW TO AVOID LIFESTYLE INFLATION and more on this topic in coming days.

Also do visit & join my TELEGRAM channel  http:/http://https://t.me/MutualFundWORLD/

Special thanks to Dr.Ankit Ajmera for basic idea

1. Excellent article....new term for investors - lifestyle inflation !!

2. easily relate-able and an interesting concept.

3. New style to explain the life style inflation. Thanks Shrikant Bhai.

4. Srikant wonderful article...How 18,000 will convert to 10 ₹cr...Will please elaborate on this?