Net Worth

What is Net Worth?

Net worth measures a person’s financial condition at a given time, equal to what that person owns (assets) minus what that person owes (liabilities).

Your net worth is by far the most powerful and important financial number, providing a snapshot of your wealth and financial health.

How to Calculate Net Worth

Net worth is the value of your assets minus your liabilities. Basically, net worth is what you own minus what you owe. Your net worth fluctuates based on savings rate increases, asset accumulation, and debt obligation.

Calculate your net worth by:

Net Worth = Assets (what you own of value) – Liabilities (what you owe)

If your net worth is positive, you have enough assets to cover your liabilities. Negative net worth means you may not have enough assets (savings, investments, or items of value) to cover your liabilities.

Below is an example of a simplified net worth statement:

Assets Amount ($) Liabilities Amount ($)
Cash and Cash Equivalents $10,000 Mortgage $150,000
Savings Accounts $5,000 Car Loan $20,000
Investments $50,000 Student Loans $30,000
Retirement Accounts $100,000 Credit Card Debt $5,000
Home Equity $200,000 Personal Loans $10,000
Rental Property $150,000
Other Assets $20,000
Total Assets: $535,000 Total Liabilities: $215,000
Net Worth: $320,000

In this example:

  • Assets include various categories such as cash, savings, investments, retirement accounts, home equity, rental property, and other assets, totaling $535,000.
  • Liabilities encompass debts such as mortgage, car loan, student loans, credit card debt, and personal loans, totaling $215,000.
  • Net Worth is calculated by subtracting total liabilities from total assets, resulting in a net worth of $320,000.

This simplified net worth statement provides an overview of an individual’s financial position by comparing their assets and liabilities.