Not all items can be bought immediately after receiving your salary. Some purchases take months or even years to set aside. However, over time, inflation occurs, money depreciates, and the price of goods increases. How to calculate how much should be saved if the purchase is due, say, in 3 years?
In this article we will see:
- How to calculate how much a product will cost in a few years, taking into account ongoing inflation?
- Which is better: saving money or getting a bank loan?
- How to protect your savings from inflation?
Why save money when you can take out a loan
To begin with, consider the question: why do people postpone purchases, if you can get a loan and buy an expensive item even tomorrow? For example, a person dreams of buying a car for 700 thousand rubles. But he only has 70 thousand in stock. In this case, he can contact the bank and apply for a car loan.
True, for the fact that the bank will give the missing funds to the car enthusiast, you will have to pay. The full cost of car loans is currently at 12% per annum. If you issue a loan for the missing 630 thousand rubles for 5 years, then the monthly payment for it will be 14,014 rubles. At the same time, in 5 years the car enthusiast overpay bank 210 840 rubles, or 30.12% of the cost of the car…
If a person needs a car urgently, then he cannot do without a bank loan. But if he has no desire to overpay other people, then you can save money on your own. The purchase will have to be postponed, but in this case, the person will spend all the money earned on himself.
How long does it take to save for a purchase
If a citizen is ready to give the bank 14,000 rubles from each salary, then he can save this money and gradually accumulate for an expensive purchase on his own. He will be able to accumulate the missing 630 thousand rubles in 45 months (this is almost 4 years).
But here another problem arises. All this time there will be inflation, and collected money Little depreciate… In 4 years, a car with the characteristics that a person needs will no longer cost 700 thousand rubles, but more. The accumulated amount for the purchase may not be enough.
How do you know how much a thing will cost in the future?
The price of a product, taking into account inflation, can be calculated using the following formula:
Future value of goods = present value * (1 + inflation per year) ^ n
The inflation rate in this formula must be specified in numerical terms. If we assume that inflation in the country will be about 5% per year, then the number “0.05” must be substituted in the formula. The “n” in this formula is the number of years over which money is expected to accumulate. The “^” sign means exponentiation.
So, let’s calculate how much the car from our example will cost in 4 years.
700,000 * (1 + 0.05) ^ 4 = 850 850
It turns out that with an annual inflation of 5% in 4 years, the car will rise in price by 150,850 rubles. And the person will have to report for the purchase not 630,000, but 780,850 rubles. Accordingly, every month he will have to save not 14,014 rubles, but 17,352.
If the car enthusiast does not have such an amount, then the necessary 780,850 rubles can be accumulated in 55 months. But by that time, the price of the car will rise a little more.
Where is the exit? Maybe it’s really better to get a loan and fix the monthly payment at the level of 14,000 rubles?
Investing the accumulated money and obtaining additional income
As an alternative to loans, you can offer a gradual accumulation of money with investment in profitable instruments. Money should not lie under the pillow. They have to work. Moreover, they must be placed so that the return on investment is at least not lower than inflation.
The easiest way to get interest on accumulated capital is to place your savings on a bank deposit. However, currently (March 2021) the maximum interest on deposits is 4.4%, which is lower than inflation. In addition, the amount of our hero’s savings is only 70,000 rubles (and he is ready to deposit an additional 14,000 rubles a month). Finding a deposit with the possibility of monthly replenishment and a high interest rate is even more difficult.
However, the money collected can be invested in valuable assets on the stock exchange. An account on the exchange can be opened through a broker (for example, through the Tinkoff Investments service).
What instruments are best to invest in? The term of 4 years is considered short. Professionals do not advise buying assets with the possibility of obtaining high income and at the same time high risk on such a small horizon. Shares of large companies can bring investors a yield of up to 12-15% per annum. But at the moment when money is required to buy a car, the stock market may drawdown. Promotions may sharp fall in price, and selling them will become unprofitable.
For 4 years, it is better to invest funds in less risky assets. For example, in government bonds (that is, lend your money to the government). The yield on such securities is about five%. But the risk that the state will not fulfill its obligations is also minimal. And in order not to pay tax on the income received, you can open a so-called individual investment account (IIS) with a broker. Investors who use this tool are entitled to tax breaks.
Let’s calculate how much money can be saved by investing in bonds. So, let’s analyze the situation when a person buys 70,000 rubles of OFZ on the stock exchange, and then over the next 4 years buys additional securities in the amount of 14,000 rubles every month. For the entire period, the investor will invest 672 thousand rubles of bonds from his own funds. The amount of income that he will receive will amount to 85 671 rubles (at the rate of 5% per annum). The total asset value at the end of the term will be 827,671 rubles.
After 4 years, the securities can be sold and money can be withdrawn from the account. The accumulated amount is enough to buy a car. You will not have to resort to borrowing from the bank. Savings will be saved from inflation.