What is a 'net worth' calculation and why is it useful?

• A. Net worth = assets minus liabilities; shows overall financial health and progress over time.
• B. Net worth equals income minus expenses.
• C. Net worth is the total income per year.
• D. Net worth is assets only.

Answer: (D)

Net worth is your assets minus your liabilities, giving a snapshot of your financial position. Assets are things of value you own (cash, investments, property, cars, etc.), while liabilities are debts you owe (loans, credit card balances, mortgages). By subtracting what you owe from what you own, you see how much of your wealth is truly yours. This measure is useful because it shows your overall financial health and how it changes over time as you save, invest, or pay down debt. You can use net worth to track progress toward goals like buying a home, funding education, or planning for retirement. Other ideas mix up net worth with cash flow or total income, which describe different aspects of finances and don’t reflect what you actually own after debts.