Long Arrow Right External Link angle-right Search Times Spinner angle-left

How is the Monthly Net Income calculated in a recurring deposit stream?


The Monthly Net Income in an income stream might seem easy to calculate, but there's a little trick into how it's calculated. The immediate thought is to have the recurring deposit total divided by the number of months that the deposits have been active. However, this is incorrect. You can see in this simpler example how this calculation doesn't work:

Let's say an applicant is getting paid $500 every 2 weeks for 3 months. Their deposits are as follows:

$500 at 1/1/2020
$500 at 1/15/2020
$500 at 2/1/2020
$500 at 2/15/2020
$500 at 3/1/2020
$500 at 3/15/2020

So I think we can all agree that the applicant gets paid $1,000 per month. However, you'll see that there are 75 days between 1/1/2020 and 3/15/2020 (2.5 months). So using the formula you provided, you would get $3,000 / 2.5 month = $1,200/month. Incorrect.

The reason that the calculation is inaccurate is because the last paycheck should cover all the way until 4/1/2020. Using 4/1/2020 as the ending date, there are now 90 days between 1/1/2020 and 4/1/2020. So the calculation becomes $3,000 / 3 months = $1,000/month. Correct!

So the formula is as follows:
Monthly income = Total amount / ((number of days) / (number of deposits - 1) * (number of deposits) / 30)