Comments on: What’s Your RON (Return on Net Worth)? http://allfinancialmatters.com/2007/03/05/whats-your-ron-return-on-net-worth/ A personal finance blog dedicated to discussing such topics as budgeting, asset allocation, 401K, IRA, cash flow, insurance, financial planning, portfolio management, and other areas in personal finance. Sat, 11 Feb 2012 20:32:19 +0000 hourly 1 http://wordpress.org/?v= By: Jeff http://allfinancialmatters.com/2007/03/05/whats-your-ron-return-on-net-worth/comment-page-1/#comment-95176 Jeff Fri, 06 Apr 2007 16:55:16 +0000 http://allfinancialmatters.com/2007/03/05/whats-your-ron-return-on-net-worth/#comment-95176 Interesting concept. I would agree that it is a good measure to compare YOY results. I will add a link to this group in my own blog, which targets college students and 20 somethings. Visit at http://youngcents.blogspot.com Interesting concept. I would agree that it is a good measure to compare YOY results. I will add a link to this group in my own blog, which targets college students and 20 somethings.

Visit at http://youngcents.blogspot.com

]]> By: LegalTherapy http://allfinancialmatters.com/2007/03/05/whats-your-ron-return-on-net-worth/comment-page-1/#comment-84709 LegalTherapy Tue, 06 Mar 2007 15:51:48 +0000 http://allfinancialmatters.com/2007/03/05/whats-your-ron-return-on-net-worth/#comment-84709 It seems this tool is most useful as an intra-person comparison tool. I can calculate my RON for each of 2004 - 2007, etc. and derive a useful insight from how my RON has changed from year to year. I don't think it's very helpful as a tool of comparison between individuals though. I may have a higher or lower RON than someone else and neither of us can derive any meaningful insights from it. It seems this tool is most useful as an intra-person comparison tool. I can calculate my RON for each of 2004 – 2007, etc. and derive a useful insight from how my RON has changed from year to year. I don’t think it’s very helpful as a tool of comparison between individuals though. I may have a higher or lower RON than someone else and neither of us can derive any meaningful insights from it.

]]> By: JLP http://allfinancialmatters.com/2007/03/05/whats-your-ron-return-on-net-worth/comment-page-1/#comment-84706 JLP Tue, 06 Mar 2007 15:37:26 +0000 http://allfinancialmatters.com/2007/03/05/whats-your-ron-return-on-net-worth/#comment-84706 Alex, No, I interpreted it correctly (at least the way Stanley interprets it in the book). Actually, I think Stanley is using the wrong word for this calculation since it isn't the income from the net worth that he is talking about. It's TOTAL HOUSEHOLD INCOME, which can be derived from a number of sources (income from job, interest, investments, rent, etc.,...) I think Stanley's point is that: 1. Your net worth should be growing each and every year. 2. Your net worth should be growing FASTER than your income. Alex,

No, I interpreted it correctly (at least the way Stanley interprets it in the book).

Actually, I think Stanley is using the wrong word for this calculation since it isn’t the income from the net worth that he is talking about. It’s TOTAL HOUSEHOLD INCOME, which can be derived from a number of sources (income from job, interest, investments, rent, etc.,…)

I think Stanley’s point is that:

1. Your net worth should be growing each and every year.
2. Your net worth should be growing FASTER than your income.

]]> By: Miguel http://allfinancialmatters.com/2007/03/05/whats-your-ron-return-on-net-worth/comment-page-1/#comment-84696 Miguel Tue, 06 Mar 2007 15:04:10 +0000 http://allfinancialmatters.com/2007/03/05/whats-your-ron-return-on-net-worth/#comment-84696 Alex - That's an interesting way to look at it. FYI, as I track my own NW, I measure the growth in NW which is essentially (Annual savings from income + Annual Invmnt Gains - Invmnt Losses, divided by starting NW balance). I have been averaging in the mid-low-teens the past few yrs, and target a minimum of 10%. I think this recognizes that NW growth comes from a variety of different forms. In the early years, savings is the dominant form of NW growth (since most people are starting from scratch), and in the later years it should mostly come from investment dividends/gains, real estate income/gains, business valuation, etc. What I have found is that at some point, there is a cross-over where passive gains & sources overtake active income (i.e. salary-related savings) and that is when you see some very serious growth in NW. Alex – That’s an interesting way to look at it.

FYI, as I track my own NW, I measure the growth in NW which is essentially (Annual savings from income + Annual Invmnt Gains – Invmnt Losses, divided by starting NW balance). I have been averaging in the mid-low-teens the past few yrs, and target a minimum of 10%. I think this recognizes that NW growth comes from a variety of different forms. In the early years, savings is the dominant form of NW growth (since most people are starting from scratch), and in the later years it should mostly come from investment dividends/gains, real estate income/gains, business valuation, etc.

What I have found is that at some point, there is a cross-over where passive gains & sources overtake active income (i.e. salary-related savings) and that is when you see some very serious growth in NW.

]]> By: Alex Gierus http://allfinancialmatters.com/2007/03/05/whats-your-ron-return-on-net-worth/comment-page-1/#comment-84606 Alex Gierus Tue, 06 Mar 2007 08:08:26 +0000 http://allfinancialmatters.com/2007/03/05/whats-your-ron-return-on-net-worth/#comment-84606 No sure if the interpretation of this measure is correct. RON is similar to ROE (return on equity), and this number is to be maximized. If you have a low RON then you are not generating income from your assets and so they are not performing. An RON of 8%, which as you say is a millionaire's score, would mean that they are only making slightly more than bank interest from their net worth. A low RON simply means that you may have saved a lot of money, or lost your job, or be young, etc. Plus it sounds like the return that he is talking about is not from the Net Worth, but from the job. No sure if the interpretation of this measure is correct. RON is similar to ROE (return on equity), and this number is to be maximized. If you have a low RON then you are not generating income from your assets and so they are not performing. An RON of 8%, which as you say is a millionaire’s score, would mean that they are only making slightly more than bank interest from their net worth. A low RON simply means that you may have saved a lot of money, or lost your job, or be young, etc. Plus it sounds like the return that he is talking about is not from the Net Worth, but from the job.

]]> By: Auto loans http://allfinancialmatters.com/2007/03/05/whats-your-ron-return-on-net-worth/comment-page-1/#comment-84483 Auto loans Tue, 06 Mar 2007 00:07:34 +0000 http://allfinancialmatters.com/2007/03/05/whats-your-ron-return-on-net-worth/#comment-84483 My RON is something like 0.8 but I have a really low income and my country does its best to help the poor. I hope not to remain in this category for very long; I'm only in my early 20s. I really liked your article! Keep up the good work! My RON is something like 0.8 but I have a really low income and my country does its best to help the poor.
I hope not to remain in this category for very long; I’m only in my early 20s.
I really liked your article! Keep up the good work!

]]> By: samerwriter http://allfinancialmatters.com/2007/03/05/whats-your-ron-return-on-net-worth/comment-page-1/#comment-84477 samerwriter Mon, 05 Mar 2007 23:40:21 +0000 http://allfinancialmatters.com/2007/03/05/whats-your-ron-return-on-net-worth/#comment-84477 I prefer the "wealth score" -- derived by dividing your lifetime earnings (as reported yearly on your social security statement) by your net worth. That seems to give a better snapshot of savings, and be a little less susceptible to age-based inaccuracy. See for example: http://articles.moneycentral.msn.com/RetirementandWills/PlayingCatchUp/YourFreeFinancialReportCard.aspx I prefer the “wealth score” — derived by dividing your lifetime earnings (as reported yearly on your social security statement) by your net worth. That seems to give a better snapshot of savings, and be a little less susceptible to age-based inaccuracy.

See for example:
http://articles.moneycentral.msn.com/RetirementandWills/PlayingCatchUp/YourFreeFinancialReportCard.aspx

]]> By: JLP http://allfinancialmatters.com/2007/03/05/whats-your-ron-return-on-net-worth/comment-page-1/#comment-84466 JLP Mon, 05 Mar 2007 22:43:26 +0000 http://allfinancialmatters.com/2007/03/05/whats-your-ron-return-on-net-worth/#comment-84466 LegalTherapy said: <em>"...it’s about $.03 of net worth for every dollar of income. Do I spend 97 cents of every dollar I make?"</em> That's not what the RON tells you. Rather, it is just a marker as to how well you are doing. I think it should just be one of those tools you use once a year or so just to see how you are doing. LegalTherapy said:

“…it’s about $.03 of net worth for every dollar of income. Do I spend 97 cents of every dollar I make?”

That’s not what the RON tells you. Rather, it is just a marker as to how well you are doing. I think it should just be one of those tools you use once a year or so just to see how you are doing.

]]> By: LegalTherapy http://allfinancialmatters.com/2007/03/05/whats-your-ron-return-on-net-worth/comment-page-1/#comment-84465 LegalTherapy Mon, 05 Mar 2007 22:37:39 +0000 http://allfinancialmatters.com/2007/03/05/whats-your-ron-return-on-net-worth/#comment-84465 I may have one of the highest(i.e., worst) RON's of any of your readers, a staggeringly high 2900%. Or, reversed it's about $.03 of net worth for every dollar of income. Do I spend 97 cents of every dollar I make? No, I've been a practicing attorney in a big firm for about 18 months who's just finished paying off the "bad" loans, still getting a financial start on life and who's net worth is still tiny. So relatively high income and tiny net worth. I may have one of the highest(i.e., worst) RON’s of any of your readers, a staggeringly high 2900%. Or, reversed it’s about $.03 of net worth for every dollar of income. Do I spend 97 cents of every dollar I make? No, I’ve been a practicing attorney in a big firm for about 18 months who’s just finished paying off the “bad” loans, still getting a financial start on life and who’s net worth is still tiny. So relatively high income and tiny net worth.

]]> By: Miguel http://allfinancialmatters.com/2007/03/05/whats-your-ron-return-on-net-worth/comment-page-1/#comment-84452 Miguel Mon, 05 Mar 2007 22:01:45 +0000 http://allfinancialmatters.com/2007/03/05/whats-your-ron-return-on-net-worth/#comment-84452 FYI, read some of the Spotlight Reviews on Amazon - I'm not the only one who sees this flaw in his work. FYI, read some of the Spotlight Reviews on Amazon – I’m not the only one who sees this flaw in his work.

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