Explain the term "net worth."

Net worth is a financial metric that represents the difference between an individual's total assets and total liabilities. It provides a snapshot of an individual's financial health at a specific point in time. The calculation is straightforward: by subtracting total liabilities from total assets, you arrive at net worth. This figure indicates what you truly own after accounting for what you owe.

For example, if someone owns a house worth $300,000 and has a mortgage of $200,000, their net worth from the house would be $100,000. Thus, net worth serves as a clear indicator of financial position, enabling individuals to assess their economic standing, plan for the future, and set financial goals.

In contrast, total income refers to the sum of money received, potentially influencing future net worth but not directly reflected in the net worth calculation itself. Similarly, cash held by an individual, while an asset, only represents a fraction of their overall financial situation. Lastly, calculating total assets plus liabilities creates a misleading figure, as it neglects the fundamental purpose of net worth — understanding how much one truly owns versus owes.