The formula
How to calculate passive income
Passive income is money arriving without a corresponding hour of work: dividends, interest, net rent. Adding it up and measuring it against your spending gives the clearest single read on how close independence is.
Use net figures for rent. Gross rent overstates the position badly once the mortgage, the agent's 10%, insurance, void periods and a maintenance allowance are deducted — the honest net is often half the headline.
Fill in the following:
- Dividends per month
- Net rental income per month — after mortgage, agent fees, insurance and a maintenance allowance
- Interest per month
- Monthly spending
No submit button: type and the answer moves. Your inputs end up in the link, so the page can be shared already filled in.
Some of the fields above will accept figures that seem unusual for your own situation, and that is deliberate: the formula behind passive income works the same way regardless of scale, so the calculator does not stop you testing a hypothetical scenario a long way from your actual numbers — often the fastest way to see which input the result is most sensitive to.
Why passive income matters
FIRE stands for Financial Independence, Retire Early — reaching a portfolio large enough that investment income covers your living costs, so paid work becomes a choice rather than a necessity. It is not a specific account or product, just the point at which the figures below cross over.
Most people who look up a passive income calculation already have a specific number in mind — a quote, an offer, a target — and want to check it rather than learn the theory behind it. This page is built for that: enter your own figures, see the result immediately, and change any field to see how the answer moves without redoing the arithmetic from scratch each time.
It is also useful as a sense check before signing anything. A quote, an offer letter or a spreadsheet from someone else can contain an error, an optimistic assumption, or simply a different convention for rounding — running the same inputs through an independent calculator is a quick way to confirm a number before relying on it.
This kind of calculation rarely stands entirely alone. A passive income figure usually feeds into a wider decision — how it compares with a competing offer, whether it fits inside a monthly budget, what it does to a longer-term plan — and the value of having it as an exact number rather than a rough guess is that those follow-on comparisons stop being guesswork too. Once one figure in a decision is precise, it is worth making the effort to get the others precise as well, rather than mixing an exact calculation with several estimates and treating the result as equally reliable.
Where the same calculation needs to be run for several different scenarios side by side — three loan offers, two savings plans — the fastest approach is usually to open the calculator in a second browser tab for each one, so that the results can be compared directly rather than overwriting each other in a single set of fields.
Worked example
A concrete run-through, using the values already in the fields:
- Dividends per month: 620
- Net rental income per month: 450
- Interest per month: 130
- Monthly spending: 2,800
That gives:
- Total passive income per month: 1,200
- Total per year: 14,400
- Share of spending covered: 42.86 %
These figures are only the calculator's own starting values, included so the working is visible rather than hidden inside the tool above. Replace them with your own numbers and the same arithmetic applies — nothing about the method changes, only the inputs feeding it.
Reading the result
Coverage is the number to track month by month. Crossing 50% changes the decisions available to you; crossing 100% is financial independence by definition, whatever the portfolio total happens to be.
Where this goes wrong. Counting income that is not genuinely passive. A property you manage yourself, a side business, or anything requiring regular attention is a job with an unusual pay structure — worth having, but it does not free your time.
A useful check on any unfamiliar result is to compare it against a rough mental estimate first — round the inputs to convenient numbers and see whether the calculator's answer lands in roughly the same territory. A wildly different figure usually means one of the fields was entered in the wrong unit, most often a percentage typed as a whole number where a decimal was expected, or the reverse.
Enough to cover your spending with a margin — most people target 110–120% of current outgoings, so that a dividend cut or a tenant leaving does not immediately break the plan.
Only partly. Fully managed property comes close, at the cost of roughly 10% of the rent. Self-managed property is a part-time job, and either way the income is concentrated in one asset in one location.
The headline figure is total passive income per month. With 620 dividends per month, 450 net rental income per month and 130 interest per month, that comes to 1,200. Change any field and the figure moves with it.
Whenever one of the underlying figures changes — a new interest rate, a different balance, an updated term — since the result only reflects what is currently in the fields. There is no need to keep a separate record of past results; the web address for a filled-in version already carries the figures used to produce it.
Not unless a tax rate or a fee is explicitly one of the inputs above. Where it is not, the figure shown is a gross calculation, and any tax due depends on your personal circumstances and current tax rules, which are worth checking separately.
The arithmetic itself is exact — the calculator applies the formula shown above precisely, with no rounding until the final figure is displayed. The uncertainty, where it exists, is entirely in the inputs: an estimated rate or an approximate balance carries that same approximation through to the result.