By MoneyMaths · Prepared 22 September 2026 · How this content is produced
A higher account balance does not automatically mean you can buy more. To answer that question, compare the growth of your money with the change in the prices of what you need. The balance tells you the number of currency units; purchasing power tells you what those units can buy.
One year, two different results
Suppose $10,000 earns 4% over one year with no withdrawals, fees or tax. The balance becomes $10,400. Now suppose the same basket of goods that cost $10,000 costs 6% more: $10,600. Your balance rose by $400, but buying that basket would require another $200.
Express the $10,400 balance in starting-year purchasing power by dividing it by 1.06. The result is about $9,811.32. Relative to the starting $10,000, that is a real decline of about 1.89%.
Why subtracting the rates is only approximate
The exact one-period calculation is:
Real return = (1 + nominal return) ÷ (1 + inflation) − 1.
Use decimals: 1.04 ÷ 1.06 − 1 = −0.018868. Subtracting 6% from 4% gives −2%, which is a useful rough estimate but not the exact answer. The difference becomes more noticeable with larger rates.
Compare several price-growth assumptions
| Assumed annual inflation | Future cost |
|---|---|
| 0% | $10,000.00 |
| 3% | $11,592.74 |
| 6% | $13,382.26 |
These figures use 10000 × (1 + rate)5. They are scenarios, not current inflation readings or forecasts. Actual prices do not usually increase by one unchanged rate every year, and your personal spending mix can differ from an official inflation index.
Use the calculators in the right order
First, enter today's cost, an assumed inflation rate and the number of years in the inflation calculator using the future direction. That estimates the future price target. Next, enter that future amount into the savings goal calculator to estimate the monthly deposits required.
For example, a $10,000 purchase in five years becomes a $11,592.74 target under a 3% price-growth assumption. Starting from zero with no savings return, divide that by 60 months: approximately $193.21 per month before rounding up to ensure the target is met. The two calculators answer different questions: what the purchase might cost, and how to fund it.
Avoid double-counting inflation
If you use a future-price target, compare it with a future money balance. If you work entirely in today's purchasing power, use consistent inflation-adjusted amounts. Mixing a future-price target with an already inflation-adjusted balance makes the shortfall look larger than the same assumptions imply.
Investor.gov's risk and return explanation also discusses inflation risk. No particular investment is recommended here. Taxes, charges, changing returns and the prices of your actual purchases can all alter the outcome.
Illustrative examples, not individual financial advice. Calculation assumptions · Report an error