What is Net Worth?

Full Definition

Net worth is a single figure representing overall financial position at a point in time, calculated by adding up the current value of everything owned (assets) -- cash, savings, investments, pension pots, property, and other valuable possessions -- and subtracting everything owed (liabilities), such as a mortgage balance, personal loans, car finance and credit card debt. A positive net worth means assets exceed debts, while a negative net worth (common for younger people early in a mortgage, or after taking on a student loan and other borrowing) means liabilities currently exceed assets, though this is not necessarily a sign of financial distress if income and asset growth are on track to close the gap over time. Because net worth is calculated at a single moment, it can swing with property and investment values as well as with saving and borrowing decisions, so many people track it periodically -- for example annually -- rather than reacting to short-term market movements, using the trend over several years as a more useful indicator of financial progress than any single snapshot. Net worth differs from take-home pay or income: a high earner with large debts and few savings can have a lower net worth than a modest earner who has saved and paid down debt consistently over many years, which is why financial advisers often treat net worth, not income alone, as the more meaningful long-term measure of financial health.

How Net Worth is calculated

Worked example: A household with GBP 280,000 of assets (home equity, savings, pension) and GBP 190,000 of liabilities (mortgage, car finance, credit card) has a net worth of GBP 90,000.

Related Calculators

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