What does net worth represent?

Net worth represents the difference between total assets and total liabilities. This calculation provides a snapshot of an individual's financial health at a specific point in time. Assets include all valuable items owned, such as cash, investments, real estate, and personal property. Liabilities encompass all debts or financial obligations, like loans, mortgages, and credit card debt.

By subtracting liabilities from assets, you can determine the net worth, which indicates how much wealth a person retains after all debts are accounted for. If the number is positive, it shows financial strength, while a negative number suggests more liabilities than assets, indicating a potential need for financial adjustment.

This understanding of net worth is crucial because it helps individuals assess their financial situation, set goals, and measure progress over time, making it a fundamental component of personal finance.