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What does net worth mean?

Net worth, in the simplest sense, is the sum of an entity’s assets, minus all liabilities. The entity can be a person, a company, or even a country. If an entity has a positive net worth, it has more assets than liabilities, but if it has negative net worth, it has more liabilities than assets. It's worth noting that an entity's net worth includes current income, property, savings, stocks, etc.

Why is net worth important?


Net worth can indicate the efficiency of how an individual spends their income. A person who spends less than their income regularly enough to develop savings and does not overuse debt such as credit cards can be viewed as a responsible individual.

In retirement when many people don't have sufficient continuous income, one can draw down from the balance of their net worth to augment their retired lifestyle spending requirements.


Also known as owner's equity, net worth is important because it is conveys the remaining value of all the business activity over time.

Lenders compare net worth to liabilities in a business. Money invested in a company can come from owners and it can come from outside investors or lenders. Lenders want to see the ratio between the amount of money invested by owners and money invested by outside lenders. Lenders are more comfortable if an owner has a significant investment in his or her own company.

A lender also wants to know that if the business must be liquidated that there will be enough money left over to repay the loan.

How to calculate your net worth:

Add up all of your assets, then add up all of your liabilities (debts). Subtract the liabilities from the assets and you have calculated your net worth.

How to improve your net worth:

Improving your net worth is a function of increasing your assets and/or decreasing your debts.

Pay off credit card debt.

  • Live more economically and bank the savings.
  • Get an extra job to earn more money.
  • Contribute to your retirement savings plan, especially if you have an employer that matches your savings contributions.

Consult qualified financial advisors for more information on how to improve your net worth. Track your net worth over time and soon you'll find many different ways to increase it.

The Networth Calculator is a part of our complete guide on How To Buy A Franchise.

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