What Net Worth Measures
Net worth is calculated by subtracting total liabilities from total assets. Assets include cash, investments, real estate, and business interests. Liabilities include loans, mortgages, and credit card balances.
Why Assets Define Net Worth
Assets represent economic resources you control and can convert into cash. Because they reflect ownership and future economic benefit, they form the basis of net worth calculations. This approach is standard in personal finance reporting and accounting.
How Net Worth Is Used
Lenders, advisors, and institutions use net worth to assess financial health. It shows whether you have more value than debt. For a simple explanation of assets and liabilities, see the Investopedia definition of assets.
