The difference between the value of one's assets as compared to the liabilities.
This can be applied to:
It is essentially what is owned versus what is owed.
This is derived by adding up all assets such as real estate, stocks, bonds, cash, and any other assets that have market value. From this, the liabilities tied to debt are subtracted.
Whatever the number, that is one's net worth. If the liabilities exceed the assets, then that person has a negative net worth.
Net worth is applicable to wealth. This is a term typically used when described the wealthiest in society.
This is in contrast to income which is what most focus upon.
The difference can be viewed through financial statements. Income is part of the income statement whereas net worth is derived from the balance sheet.
Income is the money (or revenue) coming in. It can serve as a foundation for wealth building yet is not wealth itself. This is derived by the accumulation of assets, less the associated balances outstanding.
Net worth is important when considering retirement.
Financial management firms often use net worth as a basis for investment decisions. Higher net worth individuals can employ different strategies as compared to those with less resources.
There are regulations concerning what investments are available. Most countries have accredited investor laws. These are people who are considered high net worth, meaning they can invest in assets that are off limits or restricted to non-accredited investors.
For example, only accredited investors can invest in unregulated securities.
In the United States, an accredited investor is one with a net worth over $1 million, not including the primary residence.
Corporations and investment professionals can also qualify as accredited investors.
Society has a fascination with wealth and, in turn, high net worth individuals. With the introduction of the Internet, list such as the Bloomberg Billionaire Index track the net worth of some of the richest in the world.
Elon Musk presently has the highest net worth on the planet.
People such as Bill Gates, Jeff Bezos, and Warren Buffett garner a lot of attention and have celebrity due to their wealth.
Over the last 30 years, the technology sector generated some of the highest net worth totals in history. Most of the top people made their money by starting corporations that achieve market leadership.
Finance is also known to generate high net worth individuals. Banks and other financial institutions generate enormous profits. Wall Street with its hedge funds is an epicenter for wealth creation.
