A measure of someone’s financial standing represents the total value of their assets minus their liabilities. Assets can include things like real estate, investments, and personal property. Liabilities, on the other hand, represent outstanding debts such as mortgages, loans, and credit card balances. Calculating this measure provides a snapshot of an individual’s overall wealth at a specific point in time. For example, someone with $500,000 in assets and $100,000 in liabilities would have a measure of $400,000.
Another example involves a business owner. Suppose the business owner has a company valued at $2 million, a home worth $750,000, and $100,000 in investments. Their liabilities include a $500,000 business loan and a $250,000 mortgage. Their overall measure would be $2.1 million ($2,850,000 in assets minus $750,000 in liabilities).