Computing a salary increase is an important part of personal financial management. Computing a salary increase allows you to determine whether your compensation is keeping pace with inflation, the cost of living in your area and with the compensation that your peers are getting for similar jobs. Calculating a salary increase is a relatively straightforward exercise; nevertheless, many workers fail to understand what their pay raise equals as a percentage of their total compensation.
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Subtract your old salary from your new salary to determine the dollar amount of the increase. For example, if you are currently making £26,000 and your new salary will be £27,300, the dollar amount of the increase is £27,300 - £26,000 = £1,300.
Divide the dollar amount of the increase by your old salary to determine the percentage increase. For the example in Step 1, the percentage salary increase is £1,300/$40,000 = 5 per cent.
Benchmark your salary increase to inflation and raises received by your peers. You may be happy with a £1,300 salary increase, but if inflation for the current year is 6 per cent, you will actually be worse in terms of your actual purchasing power, even with your raise.
Tips and warnings
- You can get inflation data from the U.S. Bureau of Labor Statistics (see Resources).
- The same process applies if you are an hourly worker. All you need to do, for example, is if your rate rises to £5 an hour from £4, is divide 60p/7, which means you received a 14.3 per cent increase.
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