Calculating Your Net Worth: A Key Financial Metric

Net worth is a critical measure of an individual's or company's financial health. It represents the value of what you own (assets) minus what you owe (liabilities).

Formula:
Net Worth = Total Assets - Total Liabilities

Why is Net Worth Important?

• Financial Snapshot: It provides a clear picture of your current financial position.
• Progress Tracking: Calculating your net worth periodically (e.g., annually or quarterly) helps you track your financial progress over time.
• Goal Setting: It can be a benchmark for financial goals, such as retirement planning or wealth accumulation.
• Loan Applications: Lenders often consider net worth when evaluating loan applications.

How to Calculate Your Net Worth:

1. List Your Assets: Include cash, savings, investments (stocks, bonds, retirement accounts), real estate (market value), valuable personal property (cars, jewelry).
2. List Your Liabilities: Include mortgages, car loans, student loans, credit card balances, personal loans, and any other debts.
3. Subtract Total Liabilities from Total Assets: The result is your net worth.

A positive and growing net worth is generally a good indicator of financial progress and stability. If your net worth is negative, it means you owe more than you own, highlighting a need to focus on debt reduction and asset building.