Factory of The Mind

If you are 40, save ₹ 1 lac pm, have a networth of ₹ 1 Cr, you are likely to accumulate assets worth ₹ 26 Cr at 60 assuming that your savings increase by 10% pa and your assets grow at the same rate.  Is this sufficient to meet your expenses post earning years?  Let’s say you estimate that your expenses are going to be ₹ 80k pm at current prices (your estimate is based on the assumption that you will not have to spend for your children, your lifestyle would not be as glamorous, you may decide to move to a smaller, quieter place etc). Assuming 10% inflation, your expenses at age 60 will be ₹ 5 lac pm. Continuing with the assumption that your assets grow at 10% pa and so do your expenses, you will have adequate money till the age of 100. If you estimate your life expectancy as 95 years, you will leave behind assets worth ₹ 96 Cr. This amount may not look as big then as it looks today, because your expenses would have increased to ₹ 16.5 Cr pa. After knowing this and given what w...

Let's say, I earn ₹ 100k pm. My father used to earn ₹ 8k pm at my age (30 years ago). Am I better off or was he?  Well, nominal values across time frames cannot be compared. They need to be adjusted for currency devaluation (aka inflation) to arrive at the real value. However, the method used to arrive at the rate of inflation makes it relevant for macro policy decision. Its applicability in micro decision making is questionable. Why so is a different subject.  Is there an alternate method to ascertain real value of money across 30 years? One  way is to use 'gold standard'. 'If ₹ 100k can buy the same amount of gold in 2020 as ₹ 8k would buy in 1990, they're equal. But the fact is that in 2020, I required approximately ₹ 160k (20x) to buy the same amount of gold as my father could have bought for ₹ 8k in 1990. Though we refer to this as increase in the price of gold, it is in fact, reduction in the value of the Indian Rupee. In other words, INR has lost 95% of it...