Net worth is a term commonly thrown around in personal finance circles.
However, unless you’re well-versed in finance topics it’s likely you don’t pay much attention to your net worth and you may not even know what it is.
In fact, you may associate it with the holdings of the rich and famous more than everyday people.While many are more likely to use income as a measure of financial status, it is really a persons’ net worth that paints a more complete picture of their finances.
A very simple example would be an individual with $10,000 in their savings account who owes $2,000 on their credit card. In this case, you would take the $10,000 (asset) minus $2,000 (liability) for a net worth of $8,000. In this case it is positive.
Why Does Net Worth Matter?In the example above we discussed a hypothetical scenario where an individual had a negative net worth of – $8,000. At this point you’re probably thinking that person is in pretty bad shape, or at least not the best financial shape.