Question

Rudabeh, 34, and Donovan, 31, want to buy their first home. Their current combined net income is $65,000, and they have two auto loans totaling $32,000. They have saved approximately $12,000 for the purchase of their home and have total assets worth $55,000, which are mostly savings for retirement. Donovan has always been cautious about spending large amount of money, but Rudabeh really likes the idea of owning their own home. They do not have a budget, but they do keep track of their expenses, which amounts to $55,000 last year, including taxes. They pay off all credit card bills on a monthly basis and do not have any other debt or loans outstanding. Other than that, they do not spend a great deal of time tracking their finances. How does their net worth compare to that of other individual’s younger than 35?

Answer 1

Net worth = Total assets - total liabilities = 55,000 - 32,000 = $ 23,000

Net worth as proportion of total assets = 23,000 / 55,000 = 41.82%

Liabilities as proportion of total assets = 32,000 / 55,000 = 1 - 41.82% = 58.18%

Quantum wise, their net worth is relatively lower than what it should be for people close to 34 - 35 years old. At a combined annual income of $ 65,000 per month, the annual spend of $ 55,000 is very high. As a result they are not able to save more and hence net worth is lower. Combined net worth of a couple in the age bracket of 25 years = $ 5,000 x nos. of years worked for = $ 5,000 x 10 (assume people start working when they are 23 or 24) = $ 50,000. Their net worth is not even half of this figure. Hence, i believe the net worth is on the lower side.