Future Value of Pay Rise Tool

This tool illustrates the powerful long-term impact of investing your pay rise instead of spending it. It calculates how much the extra income from a raise could grow to over several years through the magic of compound interest, turning a small annual increase into a significant future sum.

The calculator uses the future value of an annuity formula. It treats the annual after-tax amount of your pay rise as a regular investment made each year. It then applies your expected annual investment return to this series of investments over the number of years you specify, showing the total value including both your contributions and the investment gains.

• The biggest hurdle to achieving this future value is 'lifestyle inflation' – the tendency to increase your spending as your income grows. The most powerful wealth-building move is to invest the entire difference from a pay rise.
• Even a small pay rise of 2-3% can compound into a surprisingly large amount over a 20 or 30-year career. It's a clear demonstration of the 'get rich slow' power of consistent, long-term investing.
• The assumed rate of return has a dramatic effect on the final outcome. The difference between a 5% return (like a conservative fund) and an 8% return (like a growth-oriented index fund) can be hundreds of thousands of dollars over the long term.

• Commit to the 'save your raise' strategy. The moment you get a pay rise, set up an automatic transfer for the extra amount into a dedicated investment account, so you never get used to spending it.
• Use this calculator as a motivational tool before your next salary negotiation. Seeing the long-term potential of a 5% vs 7% raise can give you the confidence to ask for what you're worth.
• Factor in inflation. The calculator shows the 'real' value in today's dollars, which is a more accurate measure of your future purchasing power. A big future number isn't as impressive if its value has been eroded by inflation.