There's a quiet problem with any fixed amount of money that arrives in the future: it doesn't buy what it buys today.
You don't need a forecast to see why. You only need arithmetic, and it's worth looking at once.
An assumption, clearly labeled
I'm going to use a rate of 3% inflation per year. That isn't a prediction. Actual inflation changes from year to year, and has been higher and lower than this. I'm using 3% because it's easy to calculate and it's in a plausible range. You can try your own rate.
What a fixed ₱1,000,000 buys later
If prices rise 3% every year, here's what ₱1,000,000 in the future is worth in today's purchasing power:
- After 10 years: about ₱744,000
- After 20 years: about ₱554,000
- After 30 years: about ₱412,000
The figure on paper stays at ₱1,000,000. What it can buy shrinks to roughly three-quarters, then a little over half, then a little over two-fifths.
Put another way: to have the buying power of today's ₱1,000,000 in 20 years, you'd need about ₱1,806,000.
Where this shows up
A fixed sum assured. A policy bought for ₱2,000,000 that never changes will protect a smaller standard of living in twenty years than it does now. That doesn't make it a bad policy. It means the amount may need to be reviewed as life and prices change.
Fixed savings goals. "I need ₱500,000 for tuition in 15 years" is probably an underestimate, since tuition tends to rise.
Retirement figures. A comfortable monthly amount today isn't the same amount in thirty years.
Cash under the mattress. Money that sits idle loses buying power every year.
What you can do about it
1. Review your cover periodically. Every few years, and at big life events, ask whether the amount still fits. 2. Look at features that adjust. Some policies offer increasing cover options or the right to increase cover at certain events without a new health check. Ask whether yours does. 3. Set goals in future pesos. When you plan for tuition or retirement, increase the figure for expected price rises. 4. Keep long-term savings working in places that have a chance of keeping up with prices, balanced against risk and how soon you need the money. 5. Keep short-term money safe and accessible, because an emergency fund's job is availability, not growth.
What not to do
Don't let this be a reason to buy something you don't understand because it "beats inflation." Higher potential returns come with higher risk, and no product removes the problem.
The takeaway
Inflation isn't dramatic. It's slow, which is why it's easy to ignore. A review once every few years, with this one idea in mind, is enough to keep a plan from quietly shrinking.
Sources: Arithmetic only: 1,000,000 ÷ (1.03)^n for 10, 20 and 30 years. The 3% rate is an illustrative assumption, not a forecast or a statistic.
The free Life Ready Checklist at lifereadywithvenus.com has a page for writing down what you find, free and with no sign-up.
