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Assets - Liabilities = Equity

Assets are things you own. Liabilities are things you owe. Equity is your net worth.

Robin is a computer programmer who works from home. They use transit instead of a car and love to travel the world. They went to an elite university. Last year, Robin made [tex]$\$[/tex] 120,000[tex]$ and spent $[/tex]\[tex]$ 115,000$[/tex].

Robin Moote's Financial Information

\begin{tabular}{|l|l|l|l|}
\hline
\multicolumn{2}{|c|}{Assets} & \multicolumn{2}{|c|}{Liabilities} \\
\hline
House & [tex]$\$[/tex] 475,000[tex]$ & Mortgage & $[/tex]\[tex]$ 400,000$[/tex] \\
\hline
Computers & [tex]$\$[/tex] 7,000[tex]$ & Student Loan & $[/tex]\[tex]$ 90,000$[/tex] \\
\hline
Investments & [tex]$\$[/tex] 6,000[tex]$ & Line of Credit & $[/tex]\[tex]$ 4,000$[/tex] \\
\hline
& & Mastercard & [tex]$\$[/tex] 12,000$ \\
\hline
TOTAL & & TOTAL & \\
\hline
\end{tabular}

1) What is Robin's net worth?
2) What would you recommend they change about their financial habits?

Sagot :

GinnyAnsweridn
To determine Robin's net worth and provide financial advice, we will go through several steps.

### Step 1: Calculate Total Assets
Total assets are the combined value of all the things Robin owns. In this case, the assets are:
- House: [tex]$475,000 - Computers: $[/tex]7,000
- Investments: [tex]$6,000 Sum these values to find the total assets: \[ \text{Total Assets} = \$[/tex]475,000 + \[tex]$7,000 + \$[/tex]6,000 = \[tex]$488,000 \] ### Step 2: Calculate Total Liabilities Total liabilities are the combined value of all the debts Robin owes. In this case, the liabilities are: - Mortgage: $[/tex]400,000
- Student Loan: [tex]$90,000 - Line of Credit: $[/tex]4,000
- Mastercard: [tex]$12,000 Sum these values to find the total liabilities: \[ \text{Total Liabilities} = \$[/tex]400,000 + \[tex]$90,000 + \$[/tex]4,000 + \[tex]$12,000 = \$[/tex]506,000 \]

### Step 3: Calculate Net Worth (Equity)
Net worth, or equity, is calculated by subtracting total liabilities from total assets:
[tex]\[ \text{Equity} = \text{Total Assets} - \text{Total Liabilities} \][/tex]
[tex]\[ \text{Equity} = \$488,000 - \$506,000 = -\$18,000 \][/tex]

So, Robin's net worth is [tex]\(-\$18,000\)[/tex].

### Financial Recommendations
1. Debt Reduction Plan: Robin has significant liabilities, especially the mortgage and student loan. Developing a strategic debt repayment plan, possibly with the help of a financial advisor, can help reduce high-interest debts more quickly.

2. Budget Adjustment: Although Robin's income is quite high, they are also spending a substantial amount annually. Reviewing their spending habits and cutting down unnecessary expenses can free up funds to pay off debts and increase savings.

3. Increase Savings: Setting up an emergency fund and regular savings plan can help build a financial cushion that improves net worth over time. Even small, consistent contributions can grow significantly due to the power of compounding interest.

4. Invest Wisely: If there is any disposable income after addressing immediate debts, consider investing in low-risk options or retirement funds to increase assets gradually.

By implementing these changes, Robin can work towards improving their net worth and achieving better financial stability.
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