Inflation adjusted salary increment

Is our salary keeping up with inflation rate?

Say, if your annual salary increment is 10 percent, and inflation rate is at 4 percent, then the ‘effective salary increment’ is actually calculated as such:

[(1 + percentage increment) / (1 + inflation rate)] – 1

In this example, it is 5.77%. It reflects your real increment after removing the effects of inflation.

In personal finance, this is the accurate financial formula to do it instead of  doing an approximation : (10 – 4 ) = 6 percent.

This Post Has 2 Comments

  1. How do you get 5.77%? (11/5) -1 is 1.2

    1. Hi there
      If you take 1.1 divide by 1.04, you got 1.05769

      Then you minus 1 from it

      So you now got .05769.

      Multiple by 100%, you got 5.77%

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