Money tool
What will your money actually be worth?
Inflation is the one cost nobody invoices you for. This shows what today's money buys later, what a future amount is worth now, and how long cash takes to lose half its use.
- Last reviewed
- Method
- Published price index data · BLS, ONS and national statistics offices
- Your figures
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2.5% is a reasonable long-run assumption here, though the rate you live with depends on what you buy.
To compare a savings rate against inflation rather than against zero.
How this works
Inflation compounds exactly like interest, in the other direction. Prices rise by the rate each year on the new level, which is why a modest-looking percentage becomes dramatic across a working life.
In 20 years, $25,000 buys
$15,217
of what it buys today, at 2.5% a year
$40,965
The same purchase costs
28 yrs
Buying power halves in
$9,743
Lost to inflation
Something priced at $25,000 today should cost about $40,965 by then. Both figures describe the same gap — one from the money's side, one from the price's.
Left in savings at 2%
The balance grows to $37,149, which buys $22,671 in today's money — about $2,329 behind where you started, because the rate is below inflation.
Year by year
What the same purchase costs, and what the same money is worth.
| Year | It costs | Money is worth |
|---|---|---|
| 1 | $25,625 | $24,390 |
| 2 | $26,266 | $23,795 |
| 3 | $26,922 | $23,215 |
| 4 | $27,595 | $22,649 |
| 5 | $28,285 | $22,096 |
A guide, not a quote. An index is an average across a whole economy. What your own money bought depends on what you spent it on, and rent, energy and food have moved very differently from the headline figure.
How this works
Both directions
future cost = amount × (1 + i)^years · today’s worth = amount ÷ (1 + i)^years
- i — the annual inflation rate as a decimal
- The first asks what something costing this much today will cost later
- The second asks what a future amount is worth in money you understand now
The same rate, read two ways
Inflation is usually explained as prices going up, which is true and not very useful. The more practical reading is that the money stays the same size and buys less of everything.
Those are two sides of one calculation. Multiply to find what a basket will cost; divide to find what a future sum is really worth. The second is the one people skip, and it is the one that matters when someone quotes you a figure twenty years out.
A worked example
Take 100,000 and 6% inflation over ten years.
Something costing 100,000 today will cost 179,085 in ten years — nearly four-fifths more for exactly the same thing.
Run it the other way and 100,000 received in ten years is worth 55,839 in today’s money. Almost half of it has gone, without any loss, theft or mistake.
This is why a savings account paying less than inflation is not a safe place that earns a little. It is a slow, certain loss that happens to be denominated in a number that keeps rising.
Why your inflation is not the published rate
A national inflation figure is an average across a basket meant to represent a whole country. Nobody buys the basket.
If a large share of your spending goes on rent, education or healthcare, your personal rate can run well above the headline for years at a time. If you own your home outright and your spending is weighted towards goods that have been getting cheaper, it can run below. The published number is the right input for a rough projection and the wrong one to argue with your own budget about.
Questions people ask
What rate should I use?
For a general projection, the central bank’s target or the recent average for your country is a reasonable default — commonly around 2% in developed economies and higher in fast-growing ones. For a specific goal, use the rate for that category if you know it: education and healthcare have run well above general inflation in many countries for decades.
Does this account for salary growth?
No. It answers what happens to a fixed amount. If your income rises with inflation, your buying power holds roughly steady — which is exactly why a raise that matches inflation is not really a raise, and why one below it is a pay cut arriving politely.
Is deflation better?
Not generally. Falling prices sound good for a shopper and are bad for an economy: people delay purchases because waiting is rewarded, that delay reduces demand, and the debt everyone already owes gets harder to repay in real terms. Low and predictable beats either extreme, which is why most central banks target a small positive number rather than zero.
How does this change how I should invest?
It sets the bar. A return below inflation is a loss in the only terms that matter. When you compare an investment to a savings account, compare both against inflation first — that comparison frequently reverses which one looks safe.
Method and figures last reviewed . Every worked example here is produced by the same calculation the page runs — enter the same inputs above and the numbers will match.