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DEFINITION:
Net worth is a snapshot of your personal wealth – it is the difference between what you own and what you owe.
Understanding net worth
Your net worth is an assessment of your financial health. It is the difference between all your assets (everything you own that has a monetary value) and your liabilities (debts you have). To calculate your net worth, take the value of all the assets you own – such as cash, retirement accounts and real estate – and subtract all your current financial obligations. For businesses, net worth is often referred to as book value or equity. Tracking your net worth over time can help you determine how your finances are doing overall. Ideally, your assets will develop in a positive direction over time.
Takeaway
Net worth is like a measuring stick for your wealth…
It is what you have left after deducting all debts. To increase your net worth, you must either increase your assets (e.g., cash or equity investments in a business) or decrease your debts (e.g., pay off your student loans or credit card bills).