• Home
• Articles
• Products
• Contact Us

Article

Future Value Adjusted for Inflation

The Real Future Value of Money

When planning for financial goals, it's crucial to consider how inflation impacts the value of money over time. One way to account for this is by calculating the "real future value," which is the future value of an amount of money adjusted for inflation.

Future value (FV) is a financial concept used to determine the value of a current asset or amount of money at a specified date in the future, based on an assumed rate of growth or interest. This calculation helps individuals and businesses understand the potential worth of their investments or savings over time.

Inflation is the rate at which the general level of prices for goods and services rises, leading to a decrease in purchasing power. As inflation increases, the value of money decreases, meaning the same amount of money will buy fewer goods and services in the future.

To accurately assess the future value of money considering inflation, we use the term "real future value." This represents the future value adjusted for expected inflation rates, giving a more realistic picture of an investment or savings' worth.

To calculate the real future value, we use the following formula:

Real Future Value = Future Value / (1 + Inflation Rate)^n

Where:

• Future Value is the amount of money in the future.
• Inflation Rate is the annual rate of inflation (expressed as a decimal).
• n is the number of years into the future.

By applying this formula, we can determine the true value of money in the future, accounting for the erosive effects of inflation.

. . .

Understanding and calculating the real future value is essential for effective financial planning. It helps individuals and businesses make informed decisions about savings, investments, and retirement planning by providing a clearer picture of their future financial position.

In conclusion, while future value gives an idea of how much an investment might grow, the real future value adjusted for inflation offers a more accurate representation of its worth, ensuring that financial goals are met despite the changing economic landscape.

If you have questions or would like to know more about any of the information found in our articles, please contact us to speak with one of our licensed professionals for a free no obligation consultation.
"We love helping people"