What is your Net Worth?

According to Forbes' latest list, Elon Musk boasts a staggering net worth of $400 billion, Jeff Bezos sits at $242 billion, while Bernard Arnault and family are worth $180 billion. These eye-watering amounts certainly grab headlines, but what exactly does “net worth” mean? How is it calculated, and is it the same as an individual’s income?

Net worth is a comprehensive measure of an individual's financial health and stability. It represents the total value of all their assets minus the total of all their liabilities. Here’s a detailed look into how net worth is calculated and how it differs from income:

Simply put, net worth is the value of assets an individual or firm owns after their liabilities are subtracted at a specific point in time. It provides a snapshot of the individual’s or firm’s current financial position after taking account of their debts and financial obligations. Assets are everything that the firm or individual owns of financial value. These include real estate, vehicles, investments and business interests. Liabilities are the debts and financial obligations that the individual or firm owes. Common liabilities include mortgages, student loans, private lease, credit card debt and unpaid taxes.

When talking about taxation, people often conflate income and net worth. Whilst they are related, it is important to know that they are not the same. Income is the money that the firm or individual earns over a particular period, through investments, salaries and business profits. Your income stream comes from labour and gains from your assets. Net worth is a broader measure of your financial health and shows exactly how much you have after your obligations at a particular point in time. In essence, your net worth is the amount of money you would have if all your assets were sold and your debt obligations were paid off.

When you regularly track your net worth, you become conscious of the interplay between spending, saving, and investing. It motivates you to save more, invest wisely, and avoid unnecessary debt. Just by understanding all factors that influence your personal net worth, you will financially become stronger.

Since the net worth considers all assets and all liabilities, measuring it over time is a solid indicator of your actual financial progress, more than tracking your cash out and in flow does. Some periods you may be buying stocks, resulting in a significant cash outflow, but that may in that same period also have increases in value so having an overall positive effect on your net worth and therefore overall financial strength. On the liability side you may have a car that depreciated in value. Your net worth will consider the depreciation (asset value became smaller), while there was not direct expense that would show this decrease in value. In short, its the indicator that best measures your overall financial power.

People often assume that calculating your net worth is only for the richest amongst us. That is far from the truth. Net worth provides a clear picture of your financial situation. By understanding the balance between your assets and liabilities, you can see how financially stable you are. This can help identify areas where you may need to cut back on debt or increase your savings and investments. Having a clear understanding of your net worth allows you to set realistic financial goals. Whether you're aiming to save for a house, plan for retirement, or pay off debt, knowing your net worth helps you track your progress toward these goals over time.

Understanding and regularly calculating your net worth is essential for maintaining financial health, setting and achieving goals, making informed decisions, and building long-term wealth. It is a fundamental metric that offers a comprehensive view of your financial position and guides you in planning for a secure financial future. Actively tracking your financial status not only prepares you for life's uncertainties but also empowers you to take control of your finances effectively.

When you download the Figy app, you can effortlessly input or link all your assets and liabilities. From that moment on, your net worth is tracked in real time—giving you a clear, insightful, and engaging view of your financial progress. With Figy, managing your wealth isn’t just easy—it’s empowering, intuitive, and even fun!