Financial Decisions.

How to make them smartly?

Perhaps, if you are reading this, you might be in the midst of making certain financial decisions. To name a few, they include:


– Should I use EPF to settle my mortgage?

– Should I first invest or settle my liabilities?

– Should I invest in unit trust, stocks, or properties?

– Should I buy a new fancier car or a bigger house?

– And, the list goes on.


Perhaps, you may be overwhelmed by it, feeling uncertain about whether the decision made will move you forward or backward financially. As such, many had chose to procrastinate because it seems ‘safer’ as the options to either ‘do it’ or ‘not to do it’ remains alive.

Understandably, some financial decisions made are irreversible. Hence, it is a virtue to consider first and avoid making hasty decisions. However, here’s the real problem: ‘How do I make smarter financial decisions if I’m not equipped with the right tools to make them?’.  

Therefore, in this article, I’ll share one simple tool that I believe is helpful for you to make sound decisions on personal finance matters. The tool is known as the ‘Return on Net Worth Analysis’ or RONW and here, I’ll share 8 things that you need to know about RONW and how you can use it immediately to solve the financial issues mentioned above:


#1: What is RONW?

RONW tells you how efficient you are in using capital.


#2: Calculating Your RONW

If you are a PWM of, there is a full demonstration made to show you how it’s done. Click – Return on Net Worth Analysis.

If you are not, then, let me explain in brief on how you can do it:


#3: What does RONW tell You?

If you have calculated your RONW and discovered:


Your RONW is Negative:

It means, you have more liabilities than your assets. You may start by clearing out debts with high interest rates such as personal loan and credit card debts to ease your financial burden. Then, you may follow up by adding productive assets to further improve your RONW figures from negative to positive.


Your RONW in Positive:

Congratulations! You have more productive assets than liabilities. If your net worth is still small, then, you may continue to grow both your net worth and your RONW. If both your net worth and RONW is large, most likely, you are wealthy and are enjoying financial freedom.


#4: Should I use my EPF to settle my Mortgage?

Let’s say, you have RM 30,000 in your EPF account and you are considering whether to withdraw it and clear RM 30,000 off from your mortgage. Is this a smart financial move? Let’s see. Based on the RONW, we would consider:


Returns from EPF:

RM 30,000 x 6.9% = RM 2,070.

Interest Payable from Mortgage:  

RM 30,000 x 4.5% = RM 1,350


If you withdraw EPF to clear mortgage, we would save RM 1,350 in interests payment but will forgo RM 2,070 in EPF dividends. Thus, you would net out RM 720 per annum if you go for it. Hence, the answer is a straight ‘No’ based on the RONW formula.


#5: Should I Invest or Settle my Liabilities?

First, it depends on how good you are as an investor and what liabilities you are owning currently.

For instance, let’s say, you are a good stock investor who knows how to make 6% dividend yields from your stock investments. You have the following debt such as credit card debt of RM 10,000 where interest rate is 18% and PTPTN loan of RM 10,000 where interest rate is 1%. Today, you are given RM 10,000 to either invest in stocks or pay off any of the two debts mentioned. As such, what should I do?

The answer is obvious. You pay off the RM 10,000 in credit card debt because its interest rate is greater than the 6% dividend yield from investing in stocks.

But, if there’s no outstanding credit card debt, then, you may invest in stocks that pay 6% in dividend yields as it is greater than the 1% interest charged by your PTPTN loan.


#6: Should I invest in Unit Trust, Stocks or Properties?

Your investment objective is to maximize your RONW safely without taking unnecessary risks. So again, it depends how good you are in investing in unit trust, stocks and properties. If you are new to the subject of investing, let me share a useful tip to improve your RONW – Invest for Cash Returns.

For example, what’s my cash returns from investing in a unit trust fund? Or, is cash flowing in or out from my pocket if I choose to invest in a unit trust? Then, repeat the same question for any stock or property investment which comes to your way.

What about Investing for Capital Gains? Well, here’s the thing. If you look at your net worth statement, you are effectively ‘Paying Cash’ when you service your mortgages, car loans, and credit card debt. Hence, receiving cash return is useful to offset interest payments to your creditors. You aren’t able to do so if you choose to invest for capital gains.

But, with that said, I’m not suggesting anyone to not invest for Capital Gains. I’m just saying, ‘If you are new, you can choose Cash Returns as your priority over Capital Gains. Savvy investors are ones that enjoy both types of returns from making any investments regardless of any asset classes.’


#7: Should I Buy a Fancier Car or a Fancier House?

Let’s start with a fancier car. Obviously, a car depreciates in value over time. But, the amount of your car loan and interest payment increase after you’ve purchased or upgraded a new fancier car. So, should you refrain from getting a brand new car? If you are now into improving your RONW, then, don’t do it. But, if you are not, then, you may go for it if it’s making you happier.

Meanwhile, a fancier house might not affect your RONW as badly as having a fancier car as properties do appreciate in value over time. Nevertheless, you will still end up with lower RONW after upgrading to a fancier house.

Thus, in this case, your fancier house is not exactly an asset rather a liability. Again, it’s nothing wrong with buying the fancier house. Just make sure that you don’t get mixed between an asset and a liability. RONW is a measurement of efficiency of your capital and not the level of your happiness. 🙂

Conclusion: How to Make Financial Decisions with RONW?

Here, I’ve prepared another video to explain how you can use this formula to make better financial decisions.

Ian Tai
Ian Tai

Ian Tai is the founder of, a platform that empowers retail investors to build wealth through ownership of fundamentally solid stocks. It is an essential tool that sifts out stocks that grow profits consistently from a database of over 900+ stocks listed mainly in Malaysia.

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