The historic average Return on Equity (ROE) of the Dow Jones Industrials is about 11%.  Can you beat that?  I mean in your personal financial life.  This is a statistic I recommend you follow – your Return On ‘Personal’ Equity, or ROPE.  Much like a business ROE, your personal return tells you how much income is returned to you as a percentage of your equity.  The ROPE measures your personal profitability by revealing how much profit you generate with the money you have invested by saving and paying down debt.

The Net Worth spreadsheet available on my Research Offers page, calculates your ROPE as you track your Net Worth.  Here’s a close-up to show how the mechanics of your ROPE might look:

By the way – why aren’t you tracking your Net Worth?  As an investor, you should have only one goal: To increase your Net Worth over time.  Unless you regularly evaluate (Total Assets minus Total Liabilities), you will not know what financial direction you are going in.

Net Worth is essential as a personal finance tool.  It’s the ultimate measure of financial health.  By reviewing your finances on a regular basis you can get a good feel for your financial well-being.  If your Net Worth is rising, you’re probably in good financial health.  If you’re net worth is shrinking, you’ll want to take a closer look at your finances to see what’s wrong.

My goal is to increase my Net Worth over the previous quarter, which means that either my expenses for the quarter were less than my income, and/or my investments have increased in market value.

The exercise of calculating your Net Worth and ROPE is really powerful.  It will help you consider every major purchase you make and every loan you take or investment you make.  It will have you asking a very simple question… what am I spending my money on that is increasing my net worth or decreasing my net worth?

Again, the spreadsheet is available on the Research Offers page.  Keep using the spreadsheet for years and it will help you reach your financial goals.