1. What is Affordability?

Affordability is a measure of financial capacity calculated by subtracting monthly debt obligations from income. It helps determine how much discretionary income remains after meeting fixed financial obligations.

2. How Does the Calculator Work?

The calculator uses the simple affordability formula:

Where:

• \( Income \) — Total monthly income in dollars
• \( Monthly\ Debt \) — Total monthly debt obligations in dollars

Explanation: The equation shows the remaining income after accounting for all debt payments, which can be used for savings, investments, or discretionary spending.

3. Importance of Affordability Calculation

Details: Calculating affordability is crucial for financial planning, loan applications, and maintaining healthy personal finances. It helps individuals understand their financial flexibility and capacity to take on additional expenses.

4. Using the Calculator

Tips: Enter your total monthly income and all monthly debt payments (credit cards, loans, mortgages, etc.). Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What counts as monthly debt?
A: Include all fixed monthly obligations like loan payments, credit card minimums, rent/mortgage, alimony, and other recurring debt payments.

Q2: What is a good affordability ratio?
A: Financial advisors typically recommend keeping debt payments below 36% of gross income, though this varies by individual circumstances.

Q3: Should I use gross or net income?
A: For personal budgeting, net income (after taxes) is more accurate. For loan applications, lenders typically use gross income.

Q4: How can I improve my affordability?
A: Either increase income or reduce monthly debt obligations through paying down balances or refinancing at lower rates.

Q5: Does this include living expenses?
A: This calculator focuses on debt obligations only. For complete budgeting, you would need to account for all living expenses separately.