Back to Basics – Net Worth

So far we’ve explored assets and liabilities so the natural next step is Net Worth. It is, by definition, the combination of the two prior topics.

Assets (own) – Liability (owe) = Net Worth

Net Worth is the value of the assets you own (the cash in your wallet, your 401(k), your car or home) minus the value of the liabilities you owe (the debt from your credit card, student loans, or mortgage).

Net Worth could be positive or negative depending on your individual situation and where you are in your career. Because net worth is a simple summary of your entire financial picture paying attention to how it is changing is a good (but not perfect) measure for understanding your financial situation at a glance.

You can see an example here of how net worth changes over time and how decisions today can make your net worth grow in the future.