Question

Ed and Marta are paid $3,250 after taxes every month. Monthly expenses include $1,200 wo''""'" on housing and utilities, $550 for auto loans, $300 on food, and an average of $1,000 on (IJ clothing and other variable expenses. Calculate and interpret their savings ratio. Hint: Prepare an income statement or use Worksheet 5, and then compute the ratio.\

Answer 1

Answer:

Savings Ratio = 6.15%

Explanation:

• To calculate the savings ratio, income statement should be prepared at first.

1. You should find the Income statement in the picture attached

According to the Income statement Ed and Marta has $200 available for savings after taking out all the expenses.

• After preparing the Income Statement, now we can calculate the savings ratio by using the formula mentioned below.

Formula: Savings ratio =  $\frac{Income available for saving}{Income available for living expenditure\\}$

After applying the formula we get:  Savings ratio = $\frac{200}{3250}= 0.0615 = 6.15%$

Interpretation: As the ratio is about how much income you have for the savings in percentage. It is a great tool to determine weather you can save more or are savings enough, which in turn will help you in future decision making.

Ed and Marta's savings ratio is about 6% which is enough for them and means that they are saving much, although it's not even near to favorable percentage which is 10% but considering their will power to save even 6% is good. Further they should compare this to past savings ratio to get the idea of where they are standing at right now. Even better would be comparing this ratio with their desired savings if they have any in their mind.