Time Value of Money – Rule 72
Ever heard of Time Value of Money?
Do you know the impact of inflation on your monetary value?
The simple rule of calculating your monetary worth in the years to come is to divide 72 by the annual inflation rate estimated. That will be the estimated number of years it takes for your monetary value to depreciate to half of its current value.
For example,
Given today (year 2011) I have RM100,000 in my accounts and the estimated inflation is 6% per annum. How long does it take for my monetary value to be halved? How much money do I need to have in a future year in order to live comfortably as the lifestyle of a millionaire today?
Answer:
72 / 6 = 12 years. Therefore, in 12 years from today, your monetary value will be halved. Meaning, in year 2023 (2011 + 12), your RM100,000 will be worth as much as RM50,000 today’s worth, provided inflation rate is 6% annually as estimated.
In order to live like a millionaire in year 2023, you will need to accumulate millions by then. But, do you have any ideas what your retirement figures are ? Continue to follow our blog and we will lead you to the answer.
Consistent and disciplined savings throughout your prime days is the key to your future retirement with dignity.
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