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.
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 %
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.
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.