Net Worth
Definition
The total value of all assets owned minus all liabilities owed, representing an individual's or company's overall financial position.
Formula
Net Worth = Total Assets - Total LiabilitiesNet worth is the single most comprehensive measure of financial health. It is calculated by adding up all assets (cash, investments, real estate, personal property) and subtracting all liabilities (mortgages, loans, credit card debt, other obligations).
For individuals, tracking net worth over time reveals whether you are making genuine financial progress. A rising net worth means your wealth is growing through saving, investing, and debt reduction. The median net worth of American households varies dramatically by age, with those approaching retirement typically having the highest net worth.
To increase net worth, focus on the two levers: increasing assets and decreasing liabilities. This means consistently saving and investing, growing your income, paying down debt, and making smart asset purchases. Checking your net worth quarterly provides accountability and motivation.
Related Calculators
Related Terms
Equity
financeThe value of ownership in an asset after subtracting all debts and liabilities associated with it.
Liability
financeA financial obligation or debt that a person or company owes, representing a claim on assets.
Balance Sheet
financeA financial statement that reports a company's assets, liabilities, and shareholders' equity at a specific point in time.
Budget
financeA financial plan that estimates income and expenses over a specific period, helping individuals or organizations manage their money effectively.
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