In financial terms, what does 'net worth' represent?

Net worth is a crucial financial concept representing the difference between what you own (your assets) and what you owe (your liabilities). This calculation provides a snapshot of an individual's or entity's financial health at a particular point in time. It can include various assets, such as real estate, investments, and cash savings, while liabilities might encompass mortgages, loans, and credit card debts.

Understanding net worth is important because it helps individuals assess their financial stability and progress toward financial goals. For instance, a positive net worth indicates that assets exceed liabilities, which is generally a sign of good financial health. Conversely, a negative net worth suggests that liabilities surpass assets, signaling potential financial difficulties.

The other options do not accurately capture the essence of net worth. While income, savings, and investments are parts of a financial picture, they do not define net worth in the same comprehensive way that the balance of assets and liabilities does.