Quick Answer
Net worth is the value of what you own after subtracting what you owe. The basic formula is:
If your assets are greater than your liabilities, your net worth is positive. If your liabilities are greater than your assets, your net worth is negative.
What Is Net Worth?
Net worth is a simple measure of your financial position at a particular point in time. It compares the total value of your assets with the total amount of your liabilities.
Assets are things you own that have financial value, while liabilities are debts or financial obligations that you owe to others.
Net Worth Formula
The formula for calculating net worth is:
To calculate your net worth, first add the current values of your assets. Then add your outstanding liabilities and subtract the liabilities from the assets.
What Are Assets?
Assets are things you own that have monetary value. Depending on your situation, assets may include:
- Cash and bank account balances
- Investments such as stocks, mutual funds and bonds
- Retirement savings
- Real estate
- Vehicles
- Other valuable personal property
What Are Liabilities?
Liabilities are amounts you owe or financial obligations that you need to pay. Common examples include:
- Home loans or mortgages
- Car loans
- Personal loans
- Credit card balances
- Education loans
- Other outstanding debts
How to Calculate Net Worth
Follow these simple steps:
- List your assets and estimate their current values.
- Add all asset values to find your total assets.
- List your outstanding debts and other liabilities.
- Add them to find your total liabilities.
- Subtract total liabilities from total assets.
Example of Net Worth Calculation
Suppose a person has the following assets:
| Asset | Value |
|---|---|
| Bank savings | ₹3,00,000 |
| Investments | ₹5,00,000 |
| Vehicle | ₹2,00,000 |
| Total Assets | ₹10,00,000 |
If the same person has total liabilities of ₹4,00,000, then:
Net worth = ₹6,00,000
Positive and Negative Net Worth
A positive net worth means your assets are worth more than your liabilities. A negative net worth means your liabilities are greater than your assets.
| Situation | Result |
|---|---|
| Assets > Liabilities | Positive net worth |
| Assets = Liabilities | Zero net worth |
| Assets < Liabilities | Negative net worth |
Why Is Net Worth Important?
Tracking net worth can help you understand your overall financial position. Looking at it over time can also show whether your assets are growing, your debts are decreasing, or both.
Net worth is different from income. Income measures money you earn over a period, while net worth represents the difference between what you own and what you owe at a particular point in time.
Net Worth vs Income
| Net Worth | Income |
|---|---|
| Measures assets minus liabilities | Measures money earned over a period |
| A snapshot of financial position | A flow of money over time |
| Can be positive, zero or negative | Usually reported as an amount earned |