Net Worth
What Is Net Worth?
Net worth is the difference between what you own (assets) and what you owe (liabilities). It represents the total value of your financial position at a specific point in time.
In simple terms, net worth measures how much wealth you have accumulated after subtracting debt.
Why It Matters
Net worth provides a clear snapshot of overall financial health. Tracking net worth over time can help individuals understand whether they are building wealth or increasing debt.
Financial planners often use net worth as a key indicator when evaluating long-term financial progress.
How Net Worth Works
Net worth is calculated using a simple formula:
Net Worth = Total Assets − Total Liabilities
Assets may include:
- cash and savings
- investments
- real estate
- vehicles and personal property
Liabilities may include:
- mortgages
- student loans
- credit card balances
- personal loans
Example
If someone owns $200,000 in assets and owes $80,000 in debt, their net worth is $120,000.
Net Worth vs Income
- Net worth measures accumulated wealth.
- Income represents money earned over time.
FAQs About Net Worth
Can net worth be negative?
Yes. If liabilities exceed assets, net worth becomes negative.
How often should net worth be calculated?
Many people review net worth quarterly or annually.
Does net worth include retirement accounts?
Yes, retirement savings are considered assets.
Related Terms
