Definition of Net Worth
A person's net worth is the total value of everything they own minus everything they owe. It is a single number that shows financial position at a specific point in time. If assets exceed liabilities, net worth is positive. If debts are larger than assets, net worth is negative.
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 your personal net worth. For a detailed breakdown of assets and liabilities, see Investopedia's net worth guide.
Why Net Worth Matters
Net worth is used by lenders, financial advisors, and individuals to measure financial health. It helps track wealth over time and compare financial progress across different life stages. A rising net worth generally indicates improving financial stability.
