Calculate Savings Ratio for Ed and Marta
What is the savings ratio of Ed and Marta?
Calculate and interpret their savings ratio using the provided information.
Savings Ratio Calculation
To calculate the savings ratio for Ed and Marta, we need to determine their total income available for savings and investment.
Ed and Marta are paid $2,070 after taxes every month. Their monthly expenses include $693 on housing and utilities, $294 for auto loans, $144 on food, and an average of $616 on clothing and other variable expenses.
To calculate their savings ratio, we first need to subtract their total monthly expenses from their after-tax income:
Total monthly expenses:
- Housing and utilities: $693
- Auto loans: $294
- Food: $144
- Clothing and other variable expenses: $616
Total expenses: $693 + $294 + $144 + $616 = $1,747
Next, we calculate the income available for savings and investment by subtracting the total expenses from the after-tax income:
Income available for savings and investment: $2,070 - $1,747 = $323
Now, we can calculate the savings ratio by dividing the income available for savings and investment by the after-tax income:
Savings ratio: $323 / $2,070 = 0.156 or 15.6%
The savings ratio of Ed and Marta is 15.6%, which means they are able to save and invest 15.6% of their after-tax income.