Next video:
Loading the player...

Net worth is the amount by which assets exceed liabilities. Another way to say this is, it’s the value of everything you own, minus all your debts.

Net worth is a concept that can be applied to both individuals and businesses, as a measure of how much they are really worth. In the corporate world, net worth is also called book value or shareholders' equity. The word “net”, in financial language, means “after subtracting expenses and debts.”

A consistent increase in net worth means assets are growing faster than debts, and indicates good financial health. Conversely, when liabilities grow faster than assets, or when the value of assets drop, net worth decreases, indicating financial problems.

What is the Jones’ net worth? They have a home valued at $250,000, an investment portfolio of $100,000, and automobiles and other assets worth $25,000. Their liabilities are a mortgage balance of $100,000 and a car loan of $10,000.

By adding the assets, and subtracting the liabilities, we find the Jones' net worth is $265,000.

Now five years later, the Jones’ financial position has changed: their home value has decreased to $225,000, their investment portfolio has increased to $120,000, they now have savings of $20,000, and their car and other assets have decreased to $15,000. On the liabilities side, their mortgage balance has dropped to $80,000, and they’ve paid off their car loan. By adding assets and subtracting liabilities, their net worth is now $300,000.

In other words, despite the decrease in the value of their home and car, the couple's net worth increased by $35,000. This is because the decreases were more than offset by increases in other assets, and a reduction in debts.

  1. No results found.
Related Articles
  1. Managing Wealth

    Assets That Increase Your Net Worth

    Your home, properties and vehicles can all increase your net worth.
  2. Investing

    The Importance Of Knowing Your Net Worth

    It is vital that you track your net worth no matter what your age.
  3. Personal Finance

    Common Liabilities That Hurt Your Net Worth

    Every penny that you keep out of the liability side of the net worth equation essentially ends up on the asset side.
  4. Managing Wealth

    The Complete Guide To Calculating Your Net Worth

    Here's everything you need to know about calculating your net worth.
  5. Personal Finance

    What's Your Net Worth Telling You?

    Net worth provides a road map for retirement - learn if you're headed in the right direction.
  6. Investing

    Evaluating Your Personal Financial Statement

    Determine your net worth by making your own cash flow statement and balance sheet.
  7. Investing

    What High Net Worth Means

    A high net worth individual is someone with many liquid financial assets.
Hot Definitions
  1. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt organizations and certain ministers. Generally, retirement ...
  2. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
  3. Liquidity Event

    An event that allows initial investors in a company to cash out some or all of their ownership shares and is considered an ...
  4. Job Market

    A market in which employers search for employees and employees search for jobs. The job market is not a physical place as ...
  5. Yuppie

    Yuppie is a slang term denoting the market segment of young urban professionals. A yuppie is often characterized by youth, ...
  6. SEC Form 13F

    A filing with the Securities and Exchange Commission (SEC), also known as the Information Required of Institutional Investment ...
Trading Center