What Will Your $100 Buy in 10 Years? Inflation and Purchasing Power
Inflation doesn't shrink your money — it shrinks what your money can buy. Understanding that erosion is lesson one in why you invest.
Cash in a drawer doesn't lose its number — but ten years later it buys less. That is inflation eroding purchasing power: the most overlooked yet most certain risk in personal finance.
How to compute purchasing power
The formula is simple: future purchasing power = present amount ÷ (1 + inflation rate) ^ years. At 3% inflation, $100 today has the buying power of about $74 in ten years, and about $55 in twenty.
The Inflation Calculator shows the erosion across different rates and horizons.
Why this forces you to invest
- Savings-account rates usually sit below inflation, so real returns are negative.
- Even if your balance grows in nominal terms, if the return trails inflation your real purchasing power still falls.
- Judge an investment by its real return: nominal return minus inflation.
That said, fear of inflation is no reason to gamble blindly. Build your emergency fund first, then put long-horizon money into assets with a chance of beating inflation, and model the outcome with the Compound Interest Calculator.
Your income needs to keep up too
The income side is equally overlooked. If your salary hasn't moved in years, your real income has been shrinking. When weighing a job's long-term value, whether raises outpace inflation matters more than the current number.