Real income change formula explained
Real Income Change Formula Explained Plain English
Real income change formula explained in plain English: (new / old) / (1 + personal inflation) - 1. It shows how purchasing power moved after adjusting for your own basket, not just a headline CPI.
Published: January 7, 2026 · Updated: January 7, 2026 · By FinToolSuite Editorial
See your real income change
Enter your income change and personal inflation to view the direction.
Disclaimer
- Educational only. Formula is an approximation based on your inputs.
- Results depend on your assumptions. No guarantees.
- See the Privacy Policy for handling details.
Real income change formula explained
Formula: (new income / old income) / (1 + personal inflation) - 1. It adjusts your income change for your own price changes to show how purchasing power moved.
Worked example
Income: $60,000 to $63,000 (up 5%). Personal inflation: 4%. Calculation: (63,000 / 60,000) / (1 + 0.04) - 1 ≈ (1.05 / 1.04) - 1 ≈ 0.96%. Direction: real income is roughly flat to slightly up. Illustrative only.
Common misunderstandings
- Mixing monthly and annual numbers.
- Using CPI for inflation when your basket differs.
- Over-trusting small decimal places; keep it directional.
- Changing multiple inputs at once and losing clarity.
See common mistakes for more checks.
Run the formula in seconds
Enter your income change and personal inflation to view the real income direction and gap estimate.
Need background? Read real vs nominal income or the interpretation guide.
FAQs
What is the real income change formula? ▼
It is (new income / old income) divided by (1 + personal inflation), minus 1, to show purchasing power direction.
Why use personal inflation instead of CPI? ▼
Personal inflation matches your basket. CPI is broad and may not reflect your spending mix.
Is this an exact prediction? ▼
No. It is an approximation based on your inputs. It is directional and should be rerun when assumptions change.
What mistakes should I avoid? ▼
Mixing monthly with annual numbers, using a different inflation rate than your basket, or over-trusting tiny decimals.
Can I compare scenarios with this formula? ▼
Yes. Save a baseline, change one input, and compare the real income change and gap direction across scenarios.
Is this advice? ▼
No. It is educational and depends on your inputs. Results are not guaranteed.