What does "net worth" represent?

Net worth is a financial term that represents the difference between an individual’s total assets and total liabilities. This metric provides a snapshot of an individual's financial health at a specific point in time. By calculating net worth, one can understand their overall financial position; if assets exceed liabilities, the net worth is positive, indicating financial stability or wealth. Conversely, if liabilities exceed assets, the net worth is negative, which can highlight financial challenges.

In the context of personal finance, assets may include items such as cash, real estate, investments, and other valuables, while liabilities encompass debts such as loans, mortgages, and other obligations. Therefore, net worth is an essential concept that reflects the true value of an individual’s financial situation after accounting for what they owe. This understanding is pivotal for financial planning and wealth management.