A tool designed for financial planning estimates future investment growth by considering regular, periodic investments (typically monthly) and the erosive effect of inflation on potential returns. For example, it projects the final corpus of an investment started today with a fixed monthly contribution, considering a projected annual inflation rate and expected annual return on investment. This allows investors to understand the real purchasing power of their future savings.
Accurate financial forecasting is crucial for informed investment decisions. Factoring in inflation provides a realistic picture of future financial security, enabling adjustments to current investment strategies for achieving long-term goals. Historically, overlooking inflation has led to underestimation of funds needed for future expenses like retirement or education, highlighting the necessity of tools that incorporate this vital economic factor.