What does the term "net worth" refer to?

Net worth is defined as the difference between total assets and total liabilities. This concept provides a clear picture of an individual's financial health by indicating what remains after all debts have been paid off. By calculating net worth, a person can assess their financial position at a specific point in time, reflecting their wealth or lack thereof.

Total assets include everything of value that a person owns, such as cash, real estate, investments, and other valuables. Total liabilities encompass all debts and obligations, like mortgages, loans, and credit card debt. By subtracting the total liabilities from the total assets, individuals can determine their net worth.

This measurement is essential for personal financial planning, as it enables individuals to track their progress toward financial goals and make informed decisions about spending, saving, and investing. Understanding net worth serves as a fundamental aspect of personal finance management, allowing individuals to gain a comprehensive view of their overall financial situation.