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.

1. According to the affordability formulas given, can he afford to take out another loan?

2. When should he follow the affordability formulas? In what cases should he not?

3. How could taking out the car loan impact his other priorities?

5-1 Affordability Listen Overview: What is Affordability? "How much should I spend on a monthly payment for my new home?" "How much should I set aside for bills?" "What do I have left to spend on vacations, entertainment, and fun?" These are questions people often ask when performing financial planning. Although the concept of affordability varies from person to person, here are some general rules of thumb" employed by financial advisors: 25% or less of an individual's gross monthly income should go towards housing (such as a mortgage payment). 35% or less of an individual's gross monthly income should go towards total monthly debt payments. This could include car payments, credit card bills, student loans, medical co-pays, etc., in addition to housing. Some financial advice may deviate from these percentages, but these values should be considered when defining "affordability" in the next assignment