5-1-1 Journal Can I Afford That
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Southern New Hampshire University *
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125
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Mathematics
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Feb 20, 2024
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MAT-125-X1909 Quant Reason & Prob Solving 23EW1
5-1-1 Journal Can I Afford That
Southern New Hampshire University
Paul S. Nomsule
10/01/2023
Prof. Scott Va Zuiden
Answer the journal prompts according to the scenario below:
Joe-Bob wants to buy a car and will need to take out a loan in order to make the purchase. His current monthly income is $3,500 per month. His mortgage payment is $900 per month, and his student loan payment is $350 per month.
Note: You do not need to take taxes into consideration for this journal.
To calculate 'how much house Joe-Bob can afford,' a good rule of thumb is using the 28/36 rule, which states that Joe-Bob shouldn’t spend more than 28% of his gross, or pre-tax, monthly income on home-related costs and no more than 36% on total debts, including his mortgage, credit cards and other loans, like auto and student loans.
Joe-Bob earns $3500 pre-tax.
Joe Bob already has a debt of $350.00 student loan payment. Now, his mortgage will cost him $900.00 per month. In total, Joe-Bob has a total of $900.00+ $350.00 = $ 1250. 00 debt including his prospective mortgage loan. Going by the Affordability formular, 28% of $3500.00 is $980.00. I converted the 28 percent into decimal by diving 28 percent by 100. Thus, 28 percent became 0.28. Therefore, 0.28 multiply by $3500.00 is $980.00 And 36% of his total debt will be solved by converting 36 percent into decimal by diving 36 percent by 100, which becomes 0.36. Furthermore,
multiply 0.36 times his total income, which is $3500.00. Thus, 36 percent of $3500.00 is $1260.00.
•According to the affordability formulas given, can he afford to take out another loan? According to affordability formular, Joe-Bob can afford to take the loan because $900.00, which is his mortgage is lower than 28 percent of his total income ($3500.00). In fact, 28 percent of his income is $980.00 dollars. 28 percent is slightly above his current mortgage amount. For the 36 percent rule applicable to his total debt, he is still in the green zone. His total debt is $1250.00. He is $10 shy of the cutoff mark. Therefore, he is also in the green. When should he follow the affordability formulas? He should follow the
affordability formular when his income meets the criteria of 28/36 rule. By keeping to the affordability formular, he will avoid a circumstance where he may be in danger of taking unto debt that he can not afford. It is important to take on debt that one can pay within the limits of their resources. By following the affordability rule, Joe-Bob will avoid stress and unnecessary debt default. In what cases should he not? I would recommend that Joe-Bob should always stick and abide by the affordability formular rule. Again, this is a way to avoid unnecessary debt and stress. It is important to avoid financial
crisis.
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How could taking out the car loan impact his other priorities?
Taking a car loan will apparently impact Joe-Bob’s ability to live within
the comfort zone of his financial comfortability. I would personally advise him not to take more debt beyond the current debt situation that he faces. He may go ahead and take a car mortgage; but he will be doing
that at his financial and emotional detriment. Given that a car is an essential commodity that is necessary, he could perhaps go for a very affordable option.