Net Worth — Definition and What It Means for Your Income
The total value of everything you own minus everything you owe.
Net worth is calculated by subtracting total liabilities (debts) from total assets (savings, investments, property, vehicles). It represents a snapshot of overall financial position at a point in time, distinct from income which measures cash flow.
Why it matters
Income and net worth are different things — a high earner with significant debt can have lower net worth than a moderate earner who has saved consistently. Net worth better reflects long-term financial security.
Example
Someone with $50,000 in savings and investments, a car worth $15,000, and $30,000 in student loan debt has a net worth of $35,000 ($65,000 in assets minus $30,000 in liabilities).
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Net Worth — FAQ
Is net worth the same as income?
No. Income measures money earned over a period (e.g., annually), while net worth measures total assets minus liabilities at a specific point in time — they are related but distinct concepts.