What Is Net Worth?

Imagine you own:

• a car
• a gaming computer
• money in your bank account
• some investments

All of those things have value.

Now imagine you also owe money for:

• credit cards
• student loans
• a car loan

Net worth is what is left after comparing:

What you own versus what you owe.

The things you own are called:

Assets

Examples include:

• cash
• investments
• houses
• cars
• retirement accounts

The things you owe are called:

Liabilities

Examples include:

• debt
• loans
• credit card balances
• mortgages

The formula is simple:

Assets − Liabilities = Net Worth

For example:

Imagine someone owns:

• $20,000 in savings
• a $10,000 car

That equals:

$30,000 in assets

But they also owe:

• $5,000 on a loan

Their net worth would be:

$25,000

Net worth is important because it gives a bigger picture of someone’s financial health.

A person with:

• a high income
• expensive purchases
• lots of debt

May still have a low net worth.

Meanwhile someone earning less money but consistently saving and investing may build a strong net worth over time.

This is one reason investors focus on:

• saving
• investing
• reducing debt
• building assets

In simple terms:

Net worth is the value of everything you own minus everything you owe.