1. What is the Affordability Calculation?

The Affordability Calculation helps determine how much money is available after accounting for income, expenses, and a desired spending ratio. It's commonly used in personal finance and budgeting to assess financial capacity.

2. How Does the Calculator Work?

The calculator uses the Affordability formula:

Where:

• \( Income \) — Total income in USD
• \( Ratio \) — Decimal representing the percentage of income available (0-1)
• \( Expenses \) — Fixed expenses in USD

Explanation: The equation calculates disposable income after accounting for mandatory expenses and the desired spending ratio.

3. Importance of Affordability Calculation

Details: This calculation is crucial for budgeting, loan applications, and financial planning to ensure expenses don't exceed available funds.

4. Using the Calculator

Tips: Enter income and expenses in USD, ratio as a decimal between 0 and 1. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is a good ratio to use?
A: Typically 0.28-0.36 for housing expenses, but varies based on individual circumstances and financial goals.

Q2: Should I use gross or net income?
A: Net income (after taxes) gives a more accurate picture of actual affordability.

Q3: What expenses should be included?
A: Include all fixed, mandatory expenses like rent, loans, utilities, and essential living costs.

Q4: What does a negative result mean?
A: A negative result indicates expenses exceed available funds based on the specified ratio.

Q5: How often should I recalculate?
A: Recalculate whenever income or expenses change significantly, or at least quarterly.