What is net worth?

Net worth is defined as the difference between an individual's total financial assets and total financial liabilities. This means that to determine someone's net worth, you take the value of everything they own—such as cash, investments, property, and other assets—and then subtract what they owe, which includes debts like loans and credit card balances. The resulting figure provides a clear snapshot of an individual's financial position, showing whether they have positive or negative net worth.

Understanding net worth is crucial because it helps people assess their overall financial health. A positive net worth indicates that assets exceed liabilities, while a negative net worth suggests that liabilities outweigh assets. This measure can be a critical factor in financial planning, goal setting, and evaluating one's progress over time.

The other options do not accurately capture the definition of net worth—financial liabilities alone, projections of future income, or total annual income do not reflect the balance of assets and debts that compose an individual's net worth.