A dollar today won't buy the same amount in twenty years. Inflation is the steady rise in prices that erodes the value of money, and understanding it is essential for any long-term financial plan.
Two sides of the same coin
Inflation can be described two ways. Looking forward, a basket of goods that costs a set amount today will cost more later. Looking at your money, a fixed amount will buy less in the future. Both describe the same erosion of value — this calculator shows each.
The formula
Future cost = present amount × (1 + rate)^years. The purchasing power of today's money in future terms is the present amount ÷ (1 + rate)^years. Even modest rates compound: at 3%, prices roughly double in about 23 years.
Why it matters for saving and investing
If your savings earn less than inflation, you're losing money in real terms even as the balance grows. That's the core reason to invest rather than hold excess cash: over long horizons, assets that outpace inflation preserve and build real wealth.
Frequently asked questions
It reduces purchasing power: as prices rise, the same amount of money buys less. Money held as cash therefore loses real value over time unless it earns a return at least equal to inflation.
Future cost = amount × (1 + inflation rate)^years. To find the real value of today's money later, you divide instead of multiply. This calculator shows both.
Many central banks target around 2% per year. Actual inflation varies and has spiked much higher in some periods, so it's worth planning with a realistic, possibly conservative, figure.
Hold assets that tend to grow at least as fast as prices — diversified stocks, property, or inflation-protected bonds — rather than keeping large sums in low-interest cash.