Net worth is total assets minus total liabilities. It is the simplest measure of financial health. Add up everything you own: cash, investments, property, vehicles. Subtract everything you owe: mortgages, loans, credit card balances. The result is your net worth. A positive number means you own more than you owe. A negative number means the opposite.

Net worth changes over time. It grows when you save, invest, and pay down debt. It shrinks when markets fall or spending outpaces income. The number can be misleading. A person with a $500,000 house and a $450,000 mortgage has $50,000 in home equity but limited liquidity. A person with $50,000 in cash and no debt has the same net worth but far more flexibility. Both matter.

Tracking net worth is useful. It forces you to see the whole picture. Many people focus on income and ignore debt. A high salary with high spending can leave net worth flat for years. Calculating net worth quarterly or annually reveals trends. It also provides motivation. Watching the number grow is satisfying. Watching it shrink is a warning. The goal is not the number itself. It is the security and options it represents.

Key components

• Cash and savings
• Investments
• Real estate
• Loans and mortgages
• Credit card debt