What Is Net Worth?

What Is Net Worth?

By Charles Joseph | Editor, Financial Affairs
Reviewed by Corey Michael | Senior Financial Analyst

Net worth is essentially the overall value of your financial life. It’s calculated by subtracting your total liabilities (or what you owe, including mortgages, loans, credit card debt, etc.) from your total assets (what you own, such as bank account balances, real estate, cars, investments, etc.). If your total assets surpass your total liabilities, you have a positive net worth. However, if your liabilities outgo your assets, your net worth could be negative. It is an important metric to understand your financial health and make any future financial planning.

Related Questions

1. How often should I calculate my net worth?

You should ideally calculate your net worth every month. This regular calculation will help you notice the changes in your financial status and make necessary adjustments promptly.

2. Is it bad to have a negative net worth?

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A negative net worth indicates that your liabilities exceed your assets, which isn’t ideal. But many young adults might have a negative net worth due to student loans. It isn’t an immediate cause for panic, but it’s a sign to start reducing debts and building assets.

3. Does net worth include salary?

No, net worth does not include salary. It includes only your assets (what you own) and liabilities (what you owe). Salary can influence your net worth as it flows into your assets or decreases your liabilities.

4. What can increase my net worth?

There are several ways to increase your net worth: save more, spend less, pay off debts, increase your income streams, and invest wisely. Each of these methods help either to increase your assets or decrease your liabilities.

5. What should my net worth be at 50?

While there isn’t a set answer because everyone’s financial situation is different, a common rule of thumb is that your net worth at 50 should be around four times your salary. However, this depends greatly on factors such as income, lifestyle, debt levels, and retirement goals.