Net Worth
Understanding what net worth is and why it matters
What is net worth?
Net worth is a financial metric that represents the difference between what you own and what you owe. In simple terms, it shows your overall financial position at a specific point in time.
How is net worth calculated?
Net worth is calculated using a straightforward formula:
Assets include cash, investments, property, and other valuables. Liabilities include loans, mortgages, credit card debt, and other obligations.
Example of net worth calculation
• Cash: $50,000
• Investments: $20,000
• Property: $300,000
Liabilities:
• Mortgage: $220,000
• Other loans: $5,000
Net Worth = $145,000
Why is net worth important?
Net worth provides a clear picture of your financial health. Tracking it over time helps you measure progress, manage debt, and make informed decisions about saving and investing.
Can net worth be negative?
Yes. A negative net worth occurs when total liabilities exceed total assets. This situation is common early in life or after large purchases, such as buying a home.
How often should net worth be calculated?
Most people calculate net worth quarterly or annually. Regular tracking allows you to see trends and adjust financial strategies accordingly.