How Inflation can affect your Savings? Find Out with Savings, Taxes and Inflation Calculator

When it comes to savings, most people have a simple formula in their mind; you save 100 dollars every month, you will have 1200 dollars by the end of the year. If you’ll keep saving at the same pace, you will have 60,000 dollars in five years. So, you will be able to afford that amazing sports car you saw last month. Sounds legit, but that is not how things work in real life.

How Inflation can affect your Savings? Find Out with Savings, Taxes and Inflation Calculator

There are many factors that affect your savings in the long run. Not only that the car would cost more than it currently is, you will also have to pay taxes on the amount you have saved or invested. This is where the things get pretty complicated and that is why people go wrong with their budget and savings plan. Yet, that is also why we have included the Savings, taxes and inflation calculator on our list.

The Effects of Inflation

Inflation is a simple phenomenon that states that the money you have saved is worth less than it was at the time it was saved. Inflation affects your saving in an indirect manner. It basically decreases the buying power of your money. it is not just the sports car, it is true for almost anything money can buy.

If you are saving for a goal such as college fee or a new home, you must take into account the current inflation rate and also expected rate at the time you will need to use the money for college. For instance, if you need 20,000 dollars in today’s money for college, you might actually need around 25,000 after five years. This is just a hypothesis and the actual value may be lesser or more than that.

Effects of Taxes on Savings

Just like the inflation factor, most savers also overlook the fact that saving 100 dollars a month won’t yield them 60,000 dollar in five years, there is a thing called federal taxes and that is applicable on the amount you save through investments or any other mean. We all are quite aware of how the taxes have increased over the years. And the way things work; we can only expect them to rise further higher in the future.

So, when estimating how much the car will cost you after five years, you must determine how much you need to save every month so that you are able to afford it after paying the tax. Let’s take the example of your college savings once again. You know you need to save 25,000 dollars in five years. It appears that saving 5000 dollars per year would be enough. Yet, those 5000 dollars are what you should be left with each year after the taxes have been paid. So, you will have to save more than that depending on the federal tax rate.

The Right Thing to Do

In order to avoid wrong estimation of the amount required in the future, you must use proper tools. We will share further tips to ensure more savings in our future posts. Till then, enjoy using our simple-to-use Savings, taxes and inflation calculator.

Blog November 4, 2013 admin No Comment(s)
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