Rudabeh 34, and Donovan 31, want to buy their first home. Their current combined net income $68000 and they have auto loans totaling $28000. They have saved approximately $12000 for the purchase of their home and have total assets worth $54,000 which are mostly savings for retirement. Donovan has always been cautious about spending large amounts 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 amounted to $56000 last year, including taxes. They pay off all credit card bills on a monthly basis and do not have any debt or loans outstanding. Other than that, they do not spend a great deal of time tracking their finances.
1) What financial statements should Rudabeh and Donovan prepare to begin realizing their home purchasing goal?
A) They should prepare a balance sheet. Since they know what their net income is, they do not need an income statement.
B) They should prepare an income statement a balance sheet, and a net worth statement.
C) They should prepare an income statement and a balance sheet.
D) They should prepare an income statement. Since they keep track of their expenses, they do not need a balance sheet.
What records should they use to compile these statements?
A) Short term debt payments
B) Fixed living expenses
C) 401(K) statement
D) Long term debt payments
E) Any outstanding I.O.Us
F) Paycheck stub
G) Variable living expenses
2. Rudabeh and Donovan's net worth is $________
Rudabeh and Donovan's surplus income is $________
Compared to others their age, Rudabeh and Donovan's net worth is
A) above both the average and median net worth.
B) above the median net worth but below the average net worth.
C) below both the average and median net worth
D) above the average net worth, but below the median net worth.
Rudabeh and Donovan's months living expense covered ratio is _________
Rudabeh and Donovan's debt ratio is _______%
What other information would be necessary or helpful to develop more complete statements?
A) college transcripts
B) birth certificates
C) a list of personal and financial goals for both Rudabeh and Donovan
D) Past Records
E) accurate and recent financial statements
To develop their budget Rudabeh and Donovan need to follow these steps.
A) Identify and calculate all sources of variable expenses such as food and entertainment and identify any areas for possible reduction.
B) Identify any areas of possible reduction in the fixed expense category.
C) Compare anticipated monthly savings with target savings levels to achieve financial goals
D) Estimate tax liability
E) Locate and examine their most recent annual personal income statement.
F) Adapt the budget in accordance with goals through efforts to earn more, spend less, and/or downsize the goals
G) Determine amount available for savings.
H) Identify and calculate all sources of fixed expenses such as mortgage or auto loan.