1. What is the Affordability Ratio?

The Affordability Ratio measures the percentage of your monthly income that goes toward paying bills. It helps assess whether your income adequately covers your expenses and indicates your overall financial health.

2. How Does the Calculator Work?

The calculator uses the Affordability Ratio formula:

Where:

• \( \text{Monthly Bills} \) — Total monthly expenses and obligations ($)
• \( \text{Monthly Income} \) — Total monthly income before taxes ($)

Explanation: This ratio shows what percentage of your income is committed to fixed expenses, helping you understand your financial flexibility.

3. Importance of Affordability Ratio

Details: A lower ratio indicates better financial health, as more income remains for savings, investments, and discretionary spending. Financial experts generally recommend keeping this ratio below 30% for optimal financial stability.

4. Using the Calculator

Tips: Enter your total monthly bills and monthly income in dollars. Include all regular expenses like rent/mortgage, utilities, loan payments, insurance, and other fixed obligations. Use gross income (before taxes) for most accurate results.

5. Frequently Asked Questions (FAQ)

Q1: What is considered a good Affordability Ratio?
A: Below 30% is ideal, 30-50% is manageable but could be improved, and above 50% indicates potential financial strain.

Q2: What bills should be included in the calculation?
A: Include all fixed monthly obligations: housing, utilities, loan payments, insurance, subscriptions, and other regular expenses.

Q3: Should I use gross or net income?
A: Gross income (before taxes) is typically used for this calculation, but net income can also be used for a more conservative estimate.

Q4: How can I improve my Affordability Ratio?
A: Either increase your income through additional sources or reduce your monthly bills by cutting unnecessary expenses or refinancing debt.

Q5: Does this ratio account for variable expenses?
A: This calculator focuses on fixed monthly bills. For comprehensive budgeting, also track variable expenses like groceries, entertainment, and transportation.