# Real Income

## What is Real Income?

Real income refers to the actual income of an individual, business, or country after adjusting for inflation. It gives a more accurate picture of economic well-being by considering changes in the purchasing power of money over time.

## Understanding Real Income

Real income is an economic measure that shows the effect of inflation on purchasing power. It's calculated by subtracting the inflation rate from nominal income. This gives a clearer idea of an individual's actual spending power. Note that real income is an estimate and doesn't reflect specific spending habits or account for savings and investments.

## Calculating Real Income

There are various formulas used for calculating real income, depending on the context and available data. Here are three commonly used methods:

• Real Wage = Wages – (Wages x Inflation rate)

This formula computes real wages by deducting the total of wages and inflation rate from the nominal wages.

• Real Wage = Wages/(1 + Inflation Rate)

Here, real wage is obtained by dividing nominal wages by the sum of 1 and the inflation rate.

• Real Wage = (1 – Inflation Rate) x Wages

This formula calculates real wages by multiplying the difference between 1 and the inflation rate by the nominal wages.