Net worth is the total value of all assets a person or company owns minus the total amount of debt. Net worth is usually expressed in the form of a dollar amount, but it can also be expressed in terms of percentages.
In today’s world, wealth is measured by assets versus debt. A person with a lot of financial assets and few liabilities has wealth, while someone with the opposite situation is said to have a “debt-to-worth” ratio — in other words, they’re drowning in debt.
The difference between net worth and wealth
Net worth is a term that is used to describe how much an asset is worth, while wealth is a term that refers to the value of everything owned minus all debts. In other words, net worth is equal to assets minus liabilities. Assets include cash and investments, your home, and your car. Liabilities are amounts owed, such as mortgages, car loans, credit card balances and student loans
Net worth can be negative if liabilities exceed assets. Well it may seem like wealth and net worth are the same thing, they’re actually quite different.
Wealth is a measure of financial health at a given point in time – the sum total of what you own minus what you owe. While net worth represents your financial position on paper at any given moment, wealth represents your financial security over a longer period of time.
Wealth takes into account both income and expenses over time; it isn’t just about what you have today but also what you have coming in (and going out). It’s about not just having money but building a sustainable stream of income-earning more than you spend in order to build savings to protect against risk now or in the future.
Wealth & Rich
Being rich means having enough income to support a luxurious lifestyle without running out of money. Being wealthy means having enough assets that generate income without ever having to work again in order to support a lavish lifestyle forever.
You’re rich if you have more money than you could ever spend in your lifetime. You’re wealthy if the assets that make up your net worth can grow over time.
If you’re building wealth, you’re probably living on a lot less than what you earn. You’re investing the difference between your income and expenses, and growing your net worth.
Wealth is about building a financial foundation for yourself, regardless of how much money you earn. It is about having enough to be comfortable and confident in the future. It’s about spending less than what you earn, investing the difference wisely, and giving yourself financial options for life.
The problem with using income to measure wealth
If you’re thinking about wealth in terms of money, then you’re probably thinking about it in terms of income. Income is how much money you get each month (from your salary, business, or investments). Your net worth is how much money you have left after everything that you own is sold and everything that you owe is paid off, and it’s a much better indicator of wealth than income.
Income is a pretty good indicator of how well a person can live for a certain amount of time, but it doesn’t tell us anything about the person’s overall financial situation. For example:
Someone who makes $6 million per year might just spend $6 million per year (or maybe even more), leaving him with little or nothing in savings. He’d be rich by most people’s standards, but he wouldn’t be wealthy.
Conversely, someone who makes only $60,000 per year might live frugally on $30,000 per year and save the rest. After 10 years, he’d have saved up $300,000 — enough to live on for the next 30 years at his current spending level! He might not feel “rich,” but he would definitely be wealthy by anyone’s standards.
Conclusion
It’s important to note the difference between net worth and wealth. Your net worth is what you own, minus what you owe. On the other hand, wealth has to do with living standards and how comfortable your life is, relative to what others of your country are experiencing. Wealth tends to be a little harder to quantify, as it depends on many different factors.