Question

Louise McIntyre’s monthly gross income is $3,600. Her employer withholds $760 in federal, state, and local income taxes and $310 in Social Security taxes per month. Louise contributes $160 each month for her IRA. Her monthly credit payments for VISA and MasterCard are $95 and $90, respectively. Her monthly payment on an automobile loan is $345. What is Louise's debt payments-to-income ratio?
Is Louise living within her means?

Answer 1

Answer:

22.36%; Yes.

Explanation:

Given that,

Gross income = $3,600

Federal, state, and local income taxes withholds = $760

Social Security taxes per month = $310

Contributes towards IRA = $160

Monthly credit payments for VISA = $95

Monthly credit payments for MasterCard = $90

Monthly credit payment:

= Visa + MasterCard + Automobile loan

= $95 + $90 + $345

= $530

Net Monthly Income:

= Gross income - (federal, state, and local income taxes withholds + Social Security taxes per month + Contributes towards IRA)

= $3,600 - ($760 + $310 + $160)

= $2,370

Debt Payments-to-Income Ratio:

= Monthly credit payment ÷ Net Monthly Income

= $530 ÷ $2,370

= 0.2236 or 22.36%

Yes, Louise is living within her means because it is a nominal part of her income and can be spent.