What is net worth?

Net worth represents the overall financial health of an individual or entity, calculated by subtracting total liabilities from total assets. This measure gives a clear picture of what someone truly owns versus what they owe. When total assets exceed total liabilities, the net worth is positive, indicating financial stability and wealth. Conversely, if liabilities surpass assets, the net worth is negative, illustrating financial challenges.

This definition encapsulates the essence of an individual's wealth and financial standing at a specific point in time. It encompasses all assets—such as cash, real estate, investments, and personal property—while taking into account all debts—including mortgages, loans, and credit obligations. Understanding net worth is crucial for personal financial planning, as it helps individuals set goals, track progress, and make informed decisions regarding spending, saving, and investing.