Are you considering general inflation while doing financial planning?

While making a financial plan, various assumptions are made and inflation is one of them. As we all know that inflation is nothing but a rise in the price of a particular thing, even though the offering remains the same. Inflation often results in reduction of purchasing power over years. As a result, with the rising rate of inflation, your income must also increase to match with the cost.

There are many ways in which inflation is considered. Some just assume the Wholesale Price Index (WPI) or Consumer Price Index (CPI) as a rate of inflation, while, some assume a flat percentage of 7 per cent or 5 per cent as a general inflation. However, the question is that whether assuming general inflation is enough for your financial plan? The answer to this is no.

General inflation is generic in nature and there are various things assumed at a conservative level. But the actual inflation for an individual might be different. Say for instance, while assuming a general inflation, the inflation of fuel expense is assumed to be based on average monthly consumption of fuel in our country and its average price increases over the years. However, if a person consumes fuel more than an average, then the actual inflation for him/her would deviate from general inflation.

So, while assuming inflation, it is important to consider it on an individual basis rather than generic basis. Even while applying this to your financial goals, you should consider it on an individual basis. So, it is always prudent to seek help of your financial planner to correctly assume certain factors while financial planning.