What is the formula for net worth?

What is the formula for net worth?

• A. Liabilities minus assets equals net worth.
• B. Net worth equals income minus expenses.
• C. Assets minus liabilities equals net worth.
• D. Assets plus liabilities equals net worth.

Answer: (C)

Net worth shows the value you truly own after accounting for what you owe. It is calculated as assets minus liabilities. Assets are things of value you own that could be converted to cash, like cash, investments, real estate, and personal property. Liabilities are your debts, such as loans, mortgages, and credit card balances. This difference tells you your overall financial position at a given moment and how it changes as you save more or pay down debt. For example, if you have 150,000 in assets and 90,000 in liabilities, your net worth is 60,000. The other options mix up what net worth measures: income minus expenses tracks cash flow or savings over time, not your total position; liabilities minus assets would just flip the sign of the true net worth; and assets plus liabilities isn’t a valid way to determine net worth since liabilities are debts, not assets.

Net worth shows the value you truly own after accounting for what you owe. It is calculated as assets minus liabilities. Assets are things of value you own that could be converted to cash, like cash, investments, real estate, and personal property. Liabilities are your debts, such as loans, mortgages, and credit card balances. This difference tells you your overall financial position at a given moment and how it changes as you save more or pay down debt. For example, if you have 150,000 in assets and 90,000 in liabilities, your net worth is 60,000. The other options mix up what net worth measures: income minus expenses tracks cash flow or savings over time, not your total position; liabilities minus assets would just flip the sign of the true net worth; and assets plus liabilities isn’t a valid way to determine net worth since liabilities are debts, not assets.