Personal Finance/nɛt wɜːrθ/
Net Worth
The total dollar value of all financial and physical assets owned minus all liabilities owed.
Plain-English Explanation
Net worth is the ultimate scorecard of personal financial health. Liquid assets (savings, brokerage accounts), real estate value, and retirement accounts add to net worth, while mortgages, auto loans, and credit card balances subtract.
Mathematical Formula
Net Worth = Total Assets - Total Liabilities
Assets include cash, investments, real estate, vehicles; Liabilities include mortgages, student debt, loan balances.
Real-World Worked Example
Assets: $20,000 cash + $80,000 401(k) + $350,000 home = $450,000. Liabilities: $250,000 mortgage + $10,000 student loan = $260,000. Net Worth = $450,000 - $260,000 = $190,000.
Why Net Worth Matters for Your Finances
Tracking net worth over time measures actual wealth accumulation far more accurately than income alone.
Common Misconception
High annual income does not equal high net worth if spending equals or exceeds earnings.
Interactive Tool
Calculate Net Worth with FinanceFlow
Use our free calculator to model your personal values.