A:

Your net worth consists of your assets less your liabilities. Assets include cash, investments, bank accounts, retirement funds and the market values of high-value properties, such as vehicles, jewelry and collectibles. Intangibles such as your personal network are sometimes considered assets as well.

Liabilities are any monies that you owe. These include student loans, mortgages, car loans and credit cards. The difference between the total value of your assets and liabilities is your net worth.

There is some debate about whether personal residences should be considered assets for the purpose of calculating net worth. Some financial experts believe that the equity in your home and the market value of your home should be considered assets, because these values can be converted to cash in the event of a sale. However, other experts feel that even if the homeowner did receive cash from the sale of the home, that cash would have to go toward the purchase or rental of another home. This essentially means that the cash received becomes a new liability — the cost of replacement housing.

There is an exception to this argument. When the home being sold has more value than the replacement home, part of the former home's value can be considered an asset. This is because the cash received from the sale of the home can be used for day-to-day living or put towards investments.

The concept of net worth applies to both personal and corporate finance. For businesses and corporations, net worth is also known as shareholder's equity. These are retained earnings that go to shareholders once dividends are paid.

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