A measurement of someone’s financial standing represents the difference between their assets and liabilities. Assets include possessions like real estate, investments, and cash, while liabilities encompass debts such as mortgages and loans. Calculating this figure provides a snapshot of an individual’s overall financial health at a specific point in time. For example, if someone owns a house worth $500,000 and has a mortgage of $200,000, along with $100,000 in investments and $20,000 in credit card debt, their calculation would involve subtracting the liabilities from the assets, resulting in a figure of $480,000.
Another illustrative example involves an entrepreneur with a business valued at $1 million, a personal residence worth $750,000, and a total of $300,000 in various debts. Their calculation would involve adding the business and home values together and then subtracting the debt, resulting in a figure of $1,450,000. This figure can fluctuate over time due to market changes, investments, and spending habits.