What does "net worth" represent?

Net worth represents the difference between total assets and total liabilities. This financial metric gives a clear picture of an individual's or entity's financial health. To calculate net worth, one lists all assets such as real estate, vehicles, cash, and investments, and then subtracts any liabilities including debts and obligations such as mortgages, loans, and credit card debt. The resulting figure indicates whether a person has a positive net worth (more assets than liabilities) or a negative net worth (more liabilities than assets).

This concept is essential for assessing overall financial stability and progress towards financial goals, as it encapsulates a comprehensive view of what one truly owns versus what they owe. It is a fundamental aspect of personal finance, helping individuals evaluate their fiscal position over time.