What is meant by the term "net worth"?

Net worth is defined as the difference between total assets and total liabilities. This financial concept provides a clear snapshot of an individual or entity's financial situation at a specific point in time. Assets are everything that you own that has value, such as cash, real estate, investments, and personal property. Liabilities, on the other hand, refer to what you owe, which includes debts such as loans, credit card balances, and mortgages.

Understanding net worth is crucial because it allows individuals to assess their financial health. A positive net worth indicates that assets outweigh liabilities, which is a sign of financial stability, while a negative net worth suggests that liabilities exceed assets, signaling potential financial trouble. This measure goes beyond just income and savings, providing a more comprehensive view of overall wealth. By focusing on the totality of one's financial situation rather than just income or investments alone, net worth serves as a key indicator of financial progress and planning.