Net worth is simply the difference between what you own, your assets, and what you owe, your liabilities, at a given point in time. If your assets total more than your liabilities, you have a positive net worth; if liabilities exceed assets, your net worth is negative. It's a snapshot figure, not a measure of income or cash flow, so it can be positive even if someone has modest monthly earnings. Recalculating it periodically shows the overall trend in your financial position.

A basic example: if someone has $5,000 in savings, $10,000 in a retirement account, and a car worth $8,000, total assets of $23,000, but owes $15,000 in student loans and $2,000 on a credit card, total liabilities of $17,000, their net worth would be $23,000 minus $17,000, or $6,000. The specific dollar amounts will differ for everyone, but the calculation method, assets minus liabilities, stays the same. Using a net worth calculator can simplify this process once you list your own account balances.

Not necessarily. Net worth measures accumulated assets minus debts, while income measures money earned over a period like a year, and the two don't always move together. Someone with a high income but heavy debt or low savings could have a lower net worth than someone with a moderate income who has saved and invested consistently over time. Net worth is generally considered a more complete picture of financial position than income alone. That said, rich is a subjective term that different people define differently.

Tracking net worth over time is generally considered a useful way to see whether your overall financial habits, saving, investing, paying down debt, are moving you in a positive direction, beyond just looking at a single account balance. It combines the effects of all your financial decisions into one number, making trends easier to spot than reviewing individual accounts separately. It's typically most useful when checked periodically and compared over time rather than judged as a single snapshot. This makes it a common tool in broader financial planning.