What is the formula for calculating net worth?

The correct formula for calculating net worth is indeed the total value of financial assets minus the total financial liabilities. This calculation provides a clear picture of an individual's financial health by determining what is owned as compared to what is owed.

Net worth is defined as the difference between assets and liabilities. Assets include everything of value that a person owns, such as cash, investments, real estate, and personal property. Liabilities encompass all debts and obligations, including loans, mortgages, and credit card balances. By subtracting the total liabilities from the total assets, one can determine the net worth, reflecting true financial standing.

Understanding this formula is crucial for personal financial planning as it allows individuals to assess their financial stability and make informed decisions regarding budgeting, saving, and investing. The other options do not accurately reflect the calculation of net worth, focusing instead on income-expenditure relationships or components of savings and investments, rather than the overall balance of assets and liabilities.