How is net worth calculated?

Net worth is calculated by subtracting total liabilities from total assets. This approach provides a clear picture of an individual’s financial position. Assets include everything you own that has value, such as cash, investments, real estate, and personal possessions. Liabilities encompass all debts and obligations, including loans, credit card debt, and mortgages.

By taking the total value of your assets and deducting the total amount you owe (liabilities), you arrive at your net worth, which ultimately tells you how much you would have left if you sold all your assets and paid off all your debts. This figure is an essential part of personal finance management as it helps assess financial health and guides future financial decisions.

While the other options involve important aspects of personal finance, they do not accurately represent the method used to calculate net worth. Adding income to assets does not account for liabilities, and evaluating monthly expenses and savings focuses on cash flow rather than overall financial position. Calculating the value of investments only addresses one part of assets, ignoring other assets that contribute to total net worth.