Net Worth
Definition
Net worth is the total value of your assets minus your liabilities, providing a snapshot of your financial health.
Explanation
To calculate net worth, add up all assets (cash, investments, property, retirement accounts) and subtract all liabilities (mortgages, credit card debt, student loans, car loans). A positive net worth means assets exceed liabilities; negative means you owe more than you own.
Tracking net worth over time is a better measure of financial progress than tracking income alone. Young adults often have negative net worth due to student loans, while net worth typically grows over a lifetime through saving and investing.
Example
Assets of $350,000 (home equity $150,000, investments $100,000, cash $50,000, retirement $50,000) minus liabilities of $200,000 (mortgage $180,000, car loan $20,000) equals a net worth of $150,000.