How is net worth defined?

Net worth is defined as the difference between the value of your assets and the total amount of your liabilities. Assets include everything you own that has value, such as cash, real estate, investments, and personal property. Liabilities encompass all debts and obligations, such as mortgages, loans, and credit card balances.

Calculating net worth provides a snapshot of your financial health at a specific point in time. A positive net worth indicates that your assets exceed your liabilities, suggesting financial stability, while a negative net worth implies that you owe more than you own, which could signal a need for financial reassessment. Understanding this concept is essential for personal financial planning, as it helps individuals gauge their financial progress and make informed decisions about saving, investing, and budgeting.