Silent killer is a word you may have heard so many times in your life. In addition, silent killer poisons exist in poison. and  In personal finance, there is one more silent killer called the inflation rate in India, which will make you poor.

In addition, the majority of the time you don’t know the exact cause for becoming poor.

What is the average inflation rate in India historically?…

Type historical average inflation in India in Google, and then you will get the page from Wikipedia.

In addition, you can see in the above image that the average inflation since 1960 till 2012 is 7.37%.

Moreover, it once reached its highest of 28.6% in 1974 and a record low of 7.63%.

However, if you add the inflation data from 2012 to now, the average inflation will not change much.

What is the inflation definition?…

The above image shows the definition of inflation rate.

What will happen to the goods and services due to inflation over a time period?…

Let’s assume that the cost of milk was Rs. 40 years ago.

and average inflation rate already we know.

Now, apply the time value of moeny formulae to know the future value of milk per litre, i.e., in today’s cost.

Present value                =                Rs. 10

Number of years            =                  40

Inflation (rate) =                                7.37%.

Milk cost today                 =    10*(1+7.37%)^40.

You can see in the above image that the cost of milk after 40 years is 171.

But you may be wondering that the cost of milk per litre in today’s cost is not even Rs. 80.

As we have assumed a random value for the cost of milk per litre 40 years ago.

Acutal milk cost per litre at that time we don’t know, i.e., why took a radom value for simple purpose.

How does inflation decrease the purchasing power of money? …

Now again, you should apply “time value of money” formulae to evolve the depreciation of money over time.

Present Value = Future Value / (1+R) ^N.

Future value  =  present currency value

N                   = Number of years.

R                    =  Rate of depreciation.

If you see the above image, the current currency value is 1 lakh, the number of years is 40, and the inflation rate is 7.37%.

And you can see the currency value after applying time value formulae for 40 years; the currency value became Rs. 5,816.77.

So, you can clearly see that the currency has depreciated. over the years.

and 1 lakh value became Rs. 5,000 approximately in 40 years.

Moreover, this depreciation happened slowly.

I.e., why I say in this article that inflation is a silent killer.

Let’s understand better with one more example about inflation making you poor…

Assume that X has 2 lakh in his hand.

In addition, he bought a TV worth 1 lakh today.

And he left with one lakh in his hand.

Moreover, the TV has to be replaced after a period of 10 years.

So, he kept that one lakh at his home in the locker.

Now, 10 years have passed away.

and X would like to buy a new TV, as the old TV stopped working.

In addition, Mr. X visits the television show room with the one lakh he has.

But the showroom owner refuses to give X the new TV, saying that the TV cost is much higher than the 1 lakh that M.X is carrying.

You can see in the above image that Televison cost became 2 lakh approximately in 10 years.

While at the same time the 1 lakh kept in the locker at the house remained 1 lakh only.

So, it is clear that you cannot buy 2 lakh worth of TV with one lakh.

And here, the one lakh lost its purchasing power due to inflation.

If that happens for many years to your money, one fine day you will become poor for sure.

How can you become rich instead of poor? …

The reason for M.X. becoming poor above is that his 1 lakh in the locker has earned anything and kept idle.

and That is the reason he became poor.

Instead of keeping that 1 lakh idle, if Mr. x invested that 1 lakh in an asset class like an equity mutual fund, his 1 lakh would have earned some profit or interest.

And if the equity mutual fund earns >= inflation rate, then his 1 lakh today definitely would have been in a position to buy the television after 10 years.

Moreover, the rate of return from an equity mutual fund we can expect is at least 10% p.a. in a 10-year period.

You can see in the above image that 1 lakh became 2.5 lakh in 10 years if the investment earns a 10% rate of return.

And 2.5 lakh is definitely higher than that of 2 lakh required to buy the television.

In addition, after buying the Televions, M.X left with Rs. 50,000.

Finally, when your investment gives a rate of return over and above the inflation rate in India, you will not become poor.

And the chances of becoming rich also significantly increase.

However, please note that historically, the inflation rate for higher education and health is far higher than the inflation we have seen in this article. i.e 7.37%.

Moreover, the historical inflation rate is 7.37%. But the inflation in future years and investment ROI we don’t know exactly.

You can see in the above image that a theif is running at a speed of 50 KM per hour, stealing your wealth.

In addition, a police officer is running at a speed of 60 KM per hour to catch the theif.

So, at any point in time, the thieves will be caught, and you will get your wealth back.

In case the police officer is always running slower than the thief, then the officer never catches the theif in life.

And you will not get your wealth back, right?

Similarly, inflation also always runs fast in order to eat your purchasing power.

If you don’t run fast enough to beat inflation, you will be the loser.

I.e Your investment must run or give a return higher than that of the inflation rate; then only you will be in the game of becoming rich or losing to become poor.

Now, its up to you to become rich or poor by always standing ahead of the inflation rate in India.

So, while creating your own financial plan, its always better to have a high inflation rate and low rate return expectation for a safer financial situation in the future.

Read an article about Why you should not buy a house with a loan? …

Also read about the time value of money—how it will help you to take the right decisions?…

And read: Why is hiding tax not easy now? …

Also read About Best Business Idea with Low Investment.

and read, How poor can become rich?”.

Also read the article about Tithe: Why you should not give?…

and read about is FD a good investment choice?

Also read, Why insurance agents in India will become poor?…

And read about how to achieve financial goals easily.

Also sign this petition: Why one should beat inflation in order to not become poor? …