Friday, June 2, 2023

# Avoiding problems: This is how you can know your mutual ability

We often need large expenses such as the purchase of a house or a car, and for this we use loans or credits. But it is important to know that our debt capacity does not fall into a situation of excessive debt that can generate long-term financial problems.

## How is the ability to borrow money?

Once you have a clear idea of ​​your current income, expenses and debts, you can calculate your debt capacity. You can do this using a simple formula: monthly income less fixed and variable expenses, less your current debt payment, multiplied by a safety factor of 30% (which will allow you to meet unforeseen events or fluctuations in your income). . This will become the maximum amount allowed that you can take in the payment of debts during the month.

Very much your mutual capacity can make long term problems Source: Freepik

## An example of knowing this number

Let you have a monthly salary of 5,255 pesos (this is the monthly minimum wage in Mexico) and add fixed and variable expenses up to a total of 3,500 pesos per month. In addition, you will now pay the debt that costs you 1,000 pesos.

• To calculate your debt capacity, you must first subtract your fixed and variable expenses and your debt from your income: 5,255 pesos (monthly income) – 3,500 pesos (fixed and variable expenses) – 1,000 pesos (current debt service) = 755 pesos (Available to pay new debt). It may not match the cost of living in real life, but this is an example to remember.
• Then, to add a safety factor, we multiply the available 755 pesos by 0.3 (or 30%): 755 pesos x 0.3 = 226.5 pesos
• Finally, to obtain the result, we add 755 pesos available more than 226.5 pesos of the security factor: 755 pesos (available to pay the new debt) + 226.5 pesos (security factor) = 981.5 pesos
• This figure is very personal and depends on several factors in your finances Source: Pixabay

Therefore, in this example, your borrowing capacity will be 981.5 pesos per month. This means that you should not take on new debt that requires a higher monthly payment than this amount in order to exceed your borrowing capacity and maintain a healthy financial situation. Do the math based on your situation and remember to figure out your debt capacity before you throw down the paper.

Being able to understand your debt is the key to making sound financial decisions and avoiding the risk of an overwhelming summer. Always remember to be realistic and never underestimate your possibilities for a healthy financial future.

We often need large expenses such as the purchase of a house or a car, and for this we use loans or credits. But it is important to know that our debt capacity does not fall into a situation of excessive debt that can generate long-term financial problems.

## How is the ability to borrow money?

Once you have a clear idea of ​​your current income, expenses and debts, you can calculate your debt capacity. You can do this using a simple formula: monthly income less fixed and variable expenses, less your current debt payment, multiplied by a safety factor of 30% (which will allow you to meet unforeseen events or fluctuations in your income). . This will become the maximum amount allowed that you can take in the payment of debts during the month.

Very much your mutual capacity can make long term problems Source: Freepik

## An example of knowing this number

Let you have a monthly salary of 5,255 pesos (this is the monthly minimum wage in Mexico) and add fixed and variable expenses up to a total of 3,500 pesos per month. In addition, you will now pay the debt that costs you 1,000 pesos.

• To calculate your debt capacity, you must first subtract your fixed and variable expenses and your debt from your income: 5,255 pesos (monthly income) – 3,500 pesos (fixed and variable expenses) – 1,000 pesos (current debt service) = 755 pesos (Available to pay new debt). It may not match the cost of living in real life, but this is an example to remember.
• Then, to add a safety factor, we multiply the available 755 pesos by 0.3 (or 30%): 755 pesos x 0.3 = 226.5 pesos
• Finally, to obtain the result, we add 755 pesos available more than 226.5 pesos of the security factor: 755 pesos (available to pay the new debt) + 226.5 pesos (security factor) = 981.5 pesos
• This figure is very personal and depends on several factors in your finances Source: Pixabay

Therefore, in this example, your borrowing capacity will be 981.5 pesos per month. This means that you should not take on new debt that requires a higher monthly payment than this amount in order to exceed your borrowing capacity and maintain a healthy financial situation. Do the math based on your situation and remember to figure out your debt capacity before you throw down the paper.

Being able to understand your debt is the key to making sound financial decisions and avoiding the risk of an overwhelming summer. Always remember to be realistic and never underestimate your possibilities for a healthy financial future.

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