General information only. Inflation and return assumptions are estimates, not guarantees or financial advice.
The difference
A nominal change is the stated percentage. A real change adjusts for inflation and better reflects purchasing power. The formula is (1 + nominal rate) ÷ (1 + inflation rate) − 1.
A quick example
A 5% pay increase with 3% inflation is about a 1.94% real increase, not exactly 2%. Subtracting inflation is a useful shortcut at low rates, but the full formula is more accurate.
Keep projections consistent
Use nominal returns with future costs that also rise with inflation, or use real returns with today’s costs. Mixing nominal growth with today’s unchanged expenses can overstate future purchasing power.
Try your numbers
The Real Raise calculator applies the formula to pay. The Idle Cash calculator shows an inflation-adjusted savings scenario.