What is net worth?

Net worth is defined as the difference between an individual's total assets and total liabilities. This financial metric provides a snapshot of an individual's financial health at any given moment. Assets include everything a person owns that has value, such as cash, real estate, investments, and personal property. Liabilities encompass all debts and obligations, such as loans, mortgages, and credit card debt.

By subtracting liabilities from assets, one can determine how much wealth an individual has accumulated. A positive net worth indicates that assets exceed liabilities, whereas a negative net worth suggests liabilities surpass assets. Understanding net worth is crucial for personal financial planning, as it helps individuals assess their financial position and make informed decisions about saving, investing, and spending.

The other options do not capture the complete concept of net worth; they focus on specific financial components rather than the overall balance between assets and liabilities, which is essential for understanding one's financial situation.