What you'll learn
- Define assets and liabilities
- Calculate a basic hypothetical net worth
Net worth is a snapshot: what someone owns minus what they owe. It does not measure a person's worth. It simply organizes assets and liabilities so financial progress can be reviewed over time.
Key terms
- Assets are things with financial value, such as cash, savings, investments, or property.
- Liabilities are amounts owed, such as credit-card balances, loans, or mortgages.
- Net worth equals assets minus liabilities.
Hypothetical snapshot
If someone has $6,000 in savings and $4,000 in investments, with a $2,500 credit-card balance, the simplified net worth is $7,500.
Use the trend
A single snapshot can be affected by timing. The trend over months or years is usually more useful than one day's number.