If you add up a person's total assets and subtract that person's total debts, you arrive at his or her net worth. This calculation also applies to companies, organizations, and other entities, and represents the subject's total wealth.
Assets Versus Liabilities
Both assets and liabilities play a part in determining net worth. Consumers can use online calculators, such as the simple one provided by CNN, or add up the numbers themselves.
An asset refers to cash or physical property with some type of value. Cash assets might include checking and savings account balances, while physical assets might involve a house, a car, or a coin collection.
Liabilities or debts, on the other hand, represent something the person owes. If you take out a loan to renovate your home, for example, the amount of the loan plus any accrued interest represents a debt.
Some items on your list might fall into both categories. If you own a home worth $100,000 and you've paid off $50,000 of the principle, you have $50,000 worth of assets (your equity) and $50,000 worth of debt.
What is the Average Net Worth?
The net worth of the average consumer varies by age. The median net worth for people between the ages of 35 and 44, for example, is $35,000, while the net worth for consumers over the age of 65 is over $194,000, according to the Motley Fool.
Additionally, property ownership accounts for the majority of most age groups' net worth. This is particularly true for consumers between the ages of 55 and 64.
Understanding your net worth helps you plan your financial future. To gain more insight and control, sign up for Mint and track your income, assets, and expenses.