How do you calculate net worth and why is it a useful metric?

• A. Net worth equals assets plus liabilities; it shows cash flow.
• B. Net worth equals assets minus liabilities; it tracks overall financial health and progress over time.
• C. Net worth equals income minus expenses; it predicts investment returns.
• D. Net worth equals cash on hand; it measures liquidity.

Answer: (B)

Net worth is the difference between what you own and what you owe. You find it by subtracting your liabilities from your assets. This single number gives a clear snapshot of your overall financial position at a moment in time and, when tracked over time, shows whether you’re building wealth or accumulating debt. It’s useful because it combines the size of your resources with your debts, helping you set priorities like paying down high‑interest debt, building an emergency fund, or investing. Remember, it’s different from cash flow (income minus expenses) and from liquidity (cash on hand). For example, assets include savings, investments, and home equity, while liabilities include loans and credit card balances.