Budgeting

Inflation

Inflation is a broad, sustained rise in prices that reduces the purchasing power of money over time.

At average inflation of 2.5%, $10,000 held with no return is worth about $7,800 in purchasing power ten years later.

In planning, it's best to project in real terms: using a return already net of inflation avoids misleadingly large future figures.

Related terms

Real return — Real return is the nominal return adjusted for inflation: it measures the actual increase in purchasing power.
Emergency fund — An emergency fund is a liquid cushion equal to three to six months of fixed expenses, set aside exclusively for unexpected events.
Net worth — Net worth is the difference between everything you own (assets) and everything you owe (liabilities), valued at the same point in time.

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Educational content. netclariq does not provide financial, investment, tax or legal advice.