Calculating your net worth involves determining the difference between your assets and liabilities. For instance, if your assets (house, car, investments) total $500,000 and your liabilities (mortgage, credit card debt) total $200,000, your net worth is $300,000.
Calculating net worth is essential for financial planning as it provides a snapshot of your financial health, helps track progress toward financial goals, and aids in decision-making. Historically, the concept originated in 1878 when Victorian economist Alfred Marshall defined wealth as the excess of assets over liabilities.