Understanding Net Worth

Net worth is defined as the total value of what you own minus what you owe, effectively providing a clear picture of your financial standing. This calculation includes various assets such as checking and savings accounts, retirement accounts, and the value of real estate, which should be valued carefully to avoid overestimating one's wealth. It is recommended to base the value of a home on its purchase price plus improvements, rather than its current market value, to prevent an inflated net worth. On the liability side, debts like credit card balances, personal loans, and mortgages should be accounted for to give an accurate representation of net worth.