What is net worth?

Net worth is defined as the difference between total assets and total liabilities. This means that to calculate your net worth, you take all the things you own (assets), such as cash, real estate, and personal possessions, and subtract what you owe (liabilities), like loans, credit card debt, and mortgages. This provides a clear picture of your financial health, indicating whether you are in a position of wealth or debt.

Understanding net worth is crucial because it helps individuals assess their financial situation and make informed decisions regarding saving, investing, and spending. The other options do not capture this definition; they either focus solely on expenditures, monthly income, or liabilities without providing a holistic view of one's financial standing.