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What is Net Worth?

Cash is included in a person's total net worth.
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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 28 March 2014
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Net worth is the difference that exists between what is owed and what assets are in the possession of the individual, business, or other entity. Calculating this involves totaling the amount of all debt obligations, and subtracting that figure from the total worth of all assets. When the cumulative value of all the assets exceeds the total of all liabilities, it can be said that a positive net worth exists.

When determining the net worth, it is important to include all assets in the calculation. Examples of assets include cash on hand, real estate holdings, stocks and other investments, and major items such as vehicles. To properly estimate the value of various assets, it is important to make use of the current fair market value, rather than going by the price paid at the time of acquisition.

Assessing the liabilities properly is also important. Liabilities include such items as the outstanding balance on a mortgage or car payment, total credit card debt, and the remaining balance on any other types of loans. It is important to account for each asset and each liability.

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Understanding your current net worth is very important. If it would be possible to pay all your current debt obligations by liquidating your assets, that is an indication of relatively stable financial health. When your assets are more than enough to pay off your current debts, that means you are even more stable from a financial point of view. The goal for many people and businesses is to operate in a situation where there is a positive net worth.

Having an accurate assessment of net worth is helpful in several ways. First, it is important that your current liability load does not exceed the current value of your assets. If you owe more than you own, that is one indicator that you are not a particularly good credit risk. Banks and other lending institutions may hesitate to offer you the best rates available, since there is more risk involved in lending you money.

Another reason that understanding your net worth is important is that it helps provide a starting place with your financial planning. If you know that you barely have enough assets to cover your current debt load, that is a signal you should put off any major purchases until you have paid off a few debts. From this perspective, periodically assessing your assets can help you understand where you are today and project when you will be in a position to purchase that new car without creating a great deal of financial hardship.

Calculating your current net worth is also helpful in identifying any surplus you may have that could be invested or placed into interest bearing accounts. Because you are reasonably sure those assets will not be required to pay off your current debts, you are free to make use of those assets to plan for later years. Without assessing your finances from time to time, you may overlook one or more assets that could be converted and used to create a higher yield that ultimately is in your best interests.

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Discuss this Article

comfyshoes
Post 4

Moldova- I know the richest man in America, Bill Gates' net worth is $54 billion. He was a Harvard drop out that decided to start his own company, and boy did that pay off.

You now there are many net worth calculators online. Smartmoney online allows the ability to calculate your net worth. You just have to plug in your information and you will be set.

Moldova
Post 3

Anon87949- I don’t know the answer to your question. The best thing to do is go to an auction house like Sotheby’s. They should be able to give you an idea of what the guitar is worth.

I heard that Mark Cuban’s net worth is almost three billion dollars and Michael Jackson’s total net worth is $350 million.

Sometimes when celebrities die, there net worth rises because people have a new found interest in the celebrity memorabilia.

In addition, because that celebrity will not be producing more records, such as his case with Michael Jackson, their memorabilia now goes into collector status. Collectable items are worth more and these items over time will increase in value.

GreenWeaver
Post 2

In order to calculate net worth you really have to add all of your assets and subtract your liabilities. That will give you your total net worth.

For example, the estimated net worth should be how much you actually in net assets. Aaron Spelling's net worth was reported to be $300 million.

His daughter Tori Spelling has an estimated net worth of 15 million. Upon Aaron Spelling’s death, Tori Spelling only inherited $700,000. Her mother, Candy’s average net worth was reported to be $600 million.

anon87949
Post 1

what is a martin tenor guitar made in 1925, worth?

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