A pay raise is worth less than the percentage suggests once you account for tax and inflation, but it compounds: every future raise builds on the higher base.
Here is how to work out what a raise actually adds, in a year, a month, and per hour, and how to judge whether it is really an increase. See your own numbers with the free pay raise calculator.
How to calculate a raise
new salary = current x (1 + raise%)
raise% = (new - current) / currentA 5% raise on $60,000 is $60,000 x 1.05 = $63,000, an extra $3,000 a year or $250 a month before tax. If you only know the new number, the percentage is the increase divided by your old salary.
What a raise on $60,000 looks like
| Raise | New salary | Per month (gross) |
|---|---|---|
| 3% | $61,800 | +$150 |
| 5% | $63,000 | +$250 |
| 10% | $66,000 | +$500 |
Did your pay actually go up?
A raise only increases your buying power if it beats inflation. If prices rose 4% and your raise is 3%, your real pay slipped by about 1%. When negotiating, anchor on the current inflation rate, not last year's salary, and remember the raise is taxed at your marginal rate, so the take-home bump is smaller than the gross figure.
The long game
Because each raise is a percentage of a higher base, early raises matter more than they look. A bigger salary now also raises the ceiling for every future increase, and frees up more to invest. To see how a larger paycheck compounds when invested, try the future value calculator, or convert your new salary to an hourly rate with the hourly wage calculator.