Inflation refers to the change or increase in the price of any commodity or service over time in an economy. While planning our future finances, investment, and goals, we do include inflation in their calculation, as inflation plays a major role in the increase of basic expenditure over time.
Be it retirement planning, or be it a plan to buy a house, car, or a bike, we do include inflation as an important parameter while planning investments for these goals. However, there are two sets of expenses or say goals, that require investment planning, that includes something more than inflation. These expenses don’t follow the average inflation rate, and for them, we have to think beyond the normal inflation rate.
These expenses are Education expenses and medical expenses. If we go through a bit of historical research, we will analyze that these expenses have always shown overshoot the average rate of price increase in an economy. To plan for future expenditure on these two aspects, you must be prepared for that overshoot part of costs also.
Not much time before but one or two decades before the cost of simple playschool and nursery learning was around Rs 2000-5000, but can you imagine currently what the trending cost, it is around Rs 2-3 lakhs a year. This is the cost you are going to spend on your 4-year child for his playschool and nursery learning. That’s shocking but this is how inflation with a leapfrog works on the education expenses over time.
The real challenge for a parent comes when their child reaches the stage to attain higher education. Private colleges in India can charge up to Rs 8-10 lakhs for an undergraduate program and Rs 15-25 lakhs for post-graduation. If you want to send your child overseas then just consider a cost 4-5 times this amount.
Schools usually increase the school fees by around 14-15% per year, this increase in the graph may not apply to existing students but this can add up to a good cost till your child gets eligible for higher education.
That’s the reason why the experts advise to over-allocate for education costs that are more than five years away.
Have you ever compared your doctor’s consultation fees one year back and what they cost this year? You might not be surprised if I say, it must have increased in blocks of Rs 500 but not as per the inflation rate.
For example: if we consider the current inflation rate that is 6%, then your doctor's consultation fees that were Rs 500 last year, must have increased to Rs 670, but that is actually not the price. I may not be accurate but your doctor’s consultation must have increased in blocks and would be around Rs 1000, and this goes on increasing like this every two years than every five years.
The price hike in medical costs doesn’t stop here but it can also be seen in the costs of preventive testing and hospitalization costs. Here you will realize that the hike in the cost of medical expenses is not only based on inflation but some non-discretionary parameter also impacts.
More to that, with the increase in lifestyle-linked diseases that are more infectious and communicable in few days, people need to be properly tested and medicated at intervals and these costs are not reimbursable through medical insurance. That means an individual must be prepared for such expenses, in addition to their health insurance plan.
Whatever can be covered through insurance plans should be. For everything else ensure that you have some surpluses built into your emergency fund for medical expenses too.
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