How income growth is calculated

The core idea behind this Income Growth Calculator is simple: income can compound. When your income rises by a percentage each year, next year’s raise is calculated on a bigger base — which is why small differences in growth rate (like 4% vs 7%) can create surprisingly large differences over time.

In Project income mode, we start with your annual income today and grow it over time using a percentage rate. If your starting income is S, your annual growth rate is r (as a decimal), and the number of years is t, the classic compounding formula is:

• Future Income (no extras): Income_t = S × (1 + r)^t

We also allow an optional extra annual income amount (bonuses, side hustle profit, extra shifts). This extra is treated as a steady add-on each year. For simplicity, the calculator adds it on top of the projected base income each year. That makes the results easy to interpret for budgeting and lifestyle decisions.

In Required growth rate mode, you already know where you want to end up. You have a starting income S, a target income T, and a timeline of t years. The calculator solves for the implied annual growth rate (also called CAGR, compound annual growth rate):

• Required CAGR: r = (T / S)^1/t − 1

This is the exact same math used in investing — but applied to your income. It answers a practical question: “What average raise % do I need each year to get from here to there?”

Because most people budget monthly, the calculator also converts annual income to a monthly equivalent: Monthly ≈ Annual / 12. This is not after-tax take-home pay — it’s a planning view. If you want net pay, use the Take Home Pay Calculator.

Income growth examples you can copy

These examples show how compounding changes your path — and why “small” raise differences add up. Try them in the calculator and screenshot the result for motivation.

• Starting income: $60,000
• Growth rate: 4%
• Years: 5
• Result: roughly $73,000+ by year 5 (before extras)

Promotions often look like “lumpy” growth (0%, 3%, 0%, 15%, 5%). The calculator uses an average growth rate, so to approximate this, you can use a higher average like 6–8% and then sanity-check the result.

• Starting income: $72,000
• Target income: $100,000
• Years: 4
• Required CAGR: about 8–9% per year

• Starting income: $55,000
• Growth rate: 5%
• Extra annual income: $6,000 (about $500/month)
• Why it matters: the “extra” can move you into a higher savings rate even before promotions.

How this calculator helps in real life

Income growth sounds abstract until you attach it to decisions you control. Here are the highest-leverage ways to use this calculator so it actually changes outcomes — not just numbers on a screen.

Pick a year and a number that would feel meaningful: $80k, $120k, $200k — whatever aligns with your goals. Switch to Required growth rate mode and calculate the CAGR. That CAGR becomes a “scoreboard.” If it says you need 10% annually, you now know you’re probably looking at: promotions, a job switch, adding a revenue stream, or building a business — not just cost-of-living raises.

A raise conversation becomes easier when you can explain your plan with numbers. For example: “To reach $X in Y years, I need roughly Z% growth. If we can do A% now plus a growth path tied to performance, I can commit to B outcomes.” This isn’t magic — but it signals seriousness.

Income growth matters most when it translates into savings/investing. Pair this tool with: Spending Percentage, Net Monthly Savings, and Long-Term Savings. The fastest way to feel progress is to increase income and keep lifestyle inflation under control.

Try three scenarios and save them: Conservative (3–4%), Expected (5–7%), and Stretch (8–12%). When you see the ranges side-by-side, you’ll spot what you need to change — like adding a side hustle, upskilling, or targeting industries with faster pay growth.

Frequently Asked Questions

• Is this a salary calculator or a business revenue calculator?

  It works for both. “Income” can mean salary, contract income, freelance income, or business profit. If you’re modeling a business, you may prefer the Revenue Growth Calculator or combine this with Profit Margin.

• What growth rate should I use?

  For many salaried roles, cost-of-living raises might be 2–4%. Promotions or job changes can create years of 8–20%+ jumps. If you’re unsure, try a range and save your scenarios.

• Does this include taxes or deductions?

  No — this is pre-tax income planning. If you want take-home pay, use the Take Home Pay Calculator or estimate your rate with Effective Tax Rate.

• Why does compounding matter so much?

  Because each year’s growth builds on the previous year’s base. Over longer timelines, a small rate difference creates a large gap. That’s the same reason investing returns compound.

• What if my raises aren’t smooth?

  That’s normal. Use this as an average plan and then sanity-check with real milestones: “promotion at year 2,” “job change at year 3,” etc. The goal is clarity, not perfect prediction.

• How should I use the “extra annual income” field?

  Use it for stable add-ons like an annual bonus estimate, a consistent side hustle, or recurring overtime. If it’s truly irregular, pair this tool with the Irregular Income Budget Calculator.