What is Net Worth?

Net worth is what you own minus what you owe. It’s the simplest way to measure your overall financial health. It is calculated by subtracting total liabilities (what you owe) from total assets (what you own). Assets include cash, bank accounts, retirement balances (like 401ks or IRAs), real estate value, and investment accounts. Liabilities encompass mortgages, auto loans, credit card balances, student debt, and other obligations. Tracking net worth over time provides a clear indicator of financial progress, reflecting either debt reduction, asset appreciation, or savings accumulation.

Under U.S. federal guidelines, net worth is also used to determine accredited investor status. According to the Securities and Exchange Commission (SEC) under Regulation D, an individual qualifies as an accredited investor if their net worth exceeds $1 million, either individually or jointly with a spouse or spousal equivalent. Crucially, SEC rules mandate the exclusion of the value of the primary residence from this calculation, and any mortgage debt secured by the residence is also excluded up to its fair market value. If the mortgage is 'underwater' (exceeding the home's value), the excess debt must be counted as a liability.