What is net worth ? Everything you need to know.

What is net worth ? Everything you need to know about net worth, and how to calculate your networth

According to investopedia Net worth is the value the assets a person or corporation owns, minus the liabilities they owe. It is an important metric to gauge a company’s health and it provides a snapshot of the firm’s current financial position.

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Net Worth; what it really mean.

Net worth is calculated by subtracting all liabilities from assets.

An asset is anything owned and has monetary value, while liabilities are obligations that deplete resources.

Positive net worth means that assets exceed liabilities, while negative net worth results when liabilities exceed assets. Positive and increasing net worth indicates good financial health while decreasing net worth is cause for concern as it might signal a decrease in assets relative to liabilities.

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The best way to improve net worth is to either reduce liabilities while assets stay constant or rise, or increase assets while liabilities either stay constant or fall.


  • Net worth is a quantitative concept that measures the value of an entity and can apply to individuals, corporations, sectors, and even countries.
  • Net worth provides a snapshot of an entity’s current financial position.
  • In business, net worth is also known as book value or shareholders’ equity. The balance sheet is also known as a net worth statement.
  • People with substantial net worth are known as high-net-worth individuals (HNWI).

What Does Net Worth Tell You About Your Finances?

What do you know about your net worth

Theoretically, your net worth is the value in cash you would have if you were to sell everything you own and paid off all of your debts. In some cases, this number is actually negative, which indicates that you own more in liabilities than in assets.

While this is not an ideal situation, it is very common for people just out of college or starting their careers. In that case, your net worth is also a measure of how much debt you would still owe if you emptied your bank accounts and sold everything you own to put towards your debt. Though neither is a realistic scenario, what your net worth measures is more important than the (generally unrealistic) assumptions that are made to get to that number.

In fact, when it comes to your financial health, so to speak, there is no ubiquitous magic net worth number you should be striving for. But, you should use your net worth to track your progress from year to year and to hopefully see it improve and grow over time.

How to Calculate Your Net Worth

how to calculate net worth

Calculating your net worth can be a simple process, but it requires that you gather all the information surrounding your current assets and liabilities. Most financial planners recommend that their clients keep a secure folder with information on all financial assets and liabilities to be updated at least once a year.

Gathering and organizing this information can be a bit of a chore at first, but ensures that you (and anyone else who might need it like your spouse or financial advisor) have access to the information when needed. Though such a folder can be turned into much more, calculating your net worth only requires basic financial information regarding the things you own and the debt that you owe. Here’s how to get started:

Calculate Your Assets

  1. Start by listing your largest assets. For most people, this could include the value of their home, any real estate properties, or vehicles like personal cars or boats. In the case of a business owner, this list would also include the value of their business, which has its own more complicated calculation. Make sure you use accurate estimates of market values in current dollars.
  2. Next, you’ll want to gather your latest statements for your more liquid assets. These assets include checking and savings accounts, cash, CDs or other investments such as brokerage accounts or retirement accounts.
  3. Finally, consider listing other personal items that may be of value. These could include valuable jewelry, coin collections, musical instruments, heirlooms, a rare wine collection, etc. You don’t need to itemize everything, but you can try to list items that are worth $500 or more.
  4. Now, take all of the assets you have listed in the first three steps and add them together. This number represents your total assets.


Calculate Your Liabilities

  1. Again, start with themajor outstanding liabilities such as the balance on your mortgage or car loans. List these loans and their most current balances.
  2. Next, list all of your personal liabilities such as any balance on your credit cards, student loans, or any other debt you may owe.
  3. Now, add up the balances on all of the liabilities you listed above. This number represents your total liabilities.

Calculate Your Net Worth

  1. To calculate your net worth, simply subtract the total liabilities from the total assets. For this exercise, it doesn’t matter how big or how small the number. It doesn’t necessarily matter if the number is negative. Your net worth is just a starting point to have something to compare against in the future.
  2. Repeat this process at least once a year and compare it with the previous year’s number. By comparing the two, you can then determine if you are making progress or getting further behind on your goals. You may want to recalculate your net worth more often if you’ve embarked on an aggressive savings or debt repayment plan.

More Net Worth Tips:


Be conservative with estimates, especially with home and vehicle values. Inflating the value of large assets may look good on paper, but may not paint an accurate picture of your net worth. Consider using a budgeting app that tracks your net worth for you automatically.

Keep liquid savings in high-yield accounts, which can help them grow faster if you’re earning a competitive annual percentage yield. Make debt repayment a priority and consider refinancing or consolidating debts at a lower interest rate to help speed up your debt payoff.

Review your budget to look for areas where you can reduce expenses and allocate more money to either savings or debt repayment. If you have additional money to save, consider maxing out your emergency fund, then maxing out your annual contributions to an individual retirement account.

Net Worth in Business

In business, net worth is also known as book value or shareholders’ equity. The balance sheet is also known as a net worth statement. The value of a company’s equity equals the difference between the value of total assets and total liabilities. Note that the values on a company’s balance sheet highlight historical costs or book values, not current market values.

Lenders scrutinize a business’s net worth to determine if it is financially healthy. If total liabilities exceed total assets, a creditor may not be too confident in a company’s ability to repay its loans.

A consistently profitable company will have a rising net worth or book value as long as these earnings are not fully distributed to shareholders as dividends. For a public company, a rising book value will often be accompanied by an increase in the value of the company’s stock price.

Net Worth in Personal Finance

personal finance

An individual’s net worth is simply the value that is left after subtracting liabilities from assets. Examples of liabilities (debt) include mortgages, credit card balances, student loans, and car loans. An individual’s assets include checking and savings account balances, the value of securities (e.g., stocks or bonds),

real property value, the market value of an automobile, et al. In other words, whatever is left after selling all assets and paying off personal debt is the net worth. Note that the value of personal net worth includes the current market value of assets and the current debt costs.

People with a substantial net worth are known as high net worth individuals (HNWI), and form the prime market for wealth managers and investment counselors.

Investors with a net worth (excluding their primary residence) of at least $1 million – either alone or together with their spouse – are “accredited investors” by the Securities and Exchange Commission (SEC), to invest in unregistered securities offerings.

To calculate your net worth, use our free Net Worth Tracker which allows you to calculate, analyze, and record your and know your net worth for free.

What Is Deficit Net Worth?

deficit net worth

Deficit net worth is a situation in which net liabilities are higher than net assets. Also known as negative net worth, this can occur for a variety of reasons,

but typically it arises when current or future asset values erode unexpectedly.


  • Deficit net worth occurs when the values of liabilities is greater than the value of assets, leading to a net debt.
  • Such negative net worth can occur suddenly if future projections change in such a way that impairs present value calculations for assets.

While deficit net worth is concerning, it is not immediately imply bankruptcy for a firm or individual if net worth can recover over the short-term.

Example of Deficit Net Worth

For example, during the global financial crisis in 2008 when home values fell sharply, many people were left owing more on their mortgage than the home was presently worth (they were underwater on the mortgages).

Since a home is often the largest asset a person will own, this led to many households experiencing a deficit net worth.Likewise, back in frontier days, land and property often gained or lost value suddenly depending on where the nearest railroad was located.

For more on deficit networth check( investopedia)

Tangible Net Worth


Tangible net worth is most commonly a calculation of the net worth of a company that excludes any value derived from intangible assets,

such as copyrights, patents, and intellectual property.

Tangible net worth for a company is essentially the total value of a company’s physical assets. These assets can include:

  • Cash
  • Accounts receivables or money owed to a company from its customers for sales
  • Inventory, such as finished goods
  • Equipment, such as machinery and computers
  • Buildings
  • Real estate
  • Investments

For an individual, the tangible net worth calculation includes such items as home equity,

any other real estate holdings, bank and investment accounts, and major personal assets such as an automobile or jewelry.

Relatively insignificant personal assets are not ordinarily included in the calculation for an individual.

Formula and Calculation of Tangible Net Worth

\begin{aligned} &\text{TNW} = \text{Total Assets} – \text{Liabilities} –

\text{Intangible Assets} \\ &\textbf{where:} \\ &\text{TNW} = \text{Tangible

Net Worth} \\ \end{aligned}​

TNW=Total Assets−Liabilities−Intangible Assetswhere:TNW=Tangible Net Worth​

Tangible net worth is calculated as follows:

  1. Locate the company’s total assets, total liabilities, and intangible assets, which are all listed on the balance sheet.
  2. Take total assets and subtract total liabilities.
  3. Take the result and subtract intangible assets.
  4. Tangible net worth can also be calculated for individuals,

using the same formula of total tangible assets minus total debt liabilities.


  • Tangible net worth is typically the net worth of a company excluding
  • intangible assets such as copyrights, patents, and intellectual property.
  • The tangible net worth calculation for a company is total assets minus total liabilities minus intangible assets.
  • Tangible net worth can also be calculated for individuals, using the same formula of total tangible assets minus total debt liabilities.

I hope this guide helped you to see evry thing you need to know about your net worth.

if you want to know how to calculate your networth check out this guide here on how to calculate your net worth

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