What Is Net Worth
Net worth is the total value of what a person owns minus what they owe. It is a single number that summarizes a person's financial position at a specific point in time. A positive net worth means assets exceed liabilities, while a negative net worth means debts are larger than assets.
How Net Worth Is Calculated
To calculate net worth, add up all assets such as cash, investments, real estate, and retirement accounts. Then subtract all liabilities, including mortgages, loans, and credit card balances. The result is the person's net worth. For a detailed breakdown of assets and liabilities, see the Investopedia definition of net worth.
Why Net Worth Matters
Net worth is used to measure wealth over time, compare financial health, and set goals. It helps individuals understand whether they are building or losing value. Lenders, advisors, and researchers also use net worth as a simple indicator of financial stability.
