hamburger
×
Digit General Insurance Logo
Powered By Digit

Real Income: Definition, Formula, and Calculation Guide

What Is Real Income?

What Is the Formula to Calculate Real Income?

How Is Real Income Calculated?

The calculation of real income can be better understood with a simple example. So, let's take a look:

Suppose Mr Alok earns an annual nominal income of ₹ 60,000. He uses the consumer price index to calculate his annual real wage rate. Now, say, the consumer price index reported an inflation percentage of 2.4%. So, by using the formula – Real Income = [Wages / (1 + Inflation Rate)], the result will be –

Particulars

Amount

Annual nominal income

₹ 60,000

Inflation rate

2.4%

Formula used

[Wages / (1 + Inflation Rate)]

Annual real wage

₹ 58,594

Note that this is an annual inflation-adjusted real wage. Individuals can also divide their nominal income by months, weeks and hours and adjust it with the subsequent change in the inflation rate.

What Is the Effect of Real Income on Purchasing Power?

Frequently Asked Questions