Glossary
Net worth
Everything you own minus everything you owe — your true financial position.
Definition
Net worth is the value of everything a person owns (assets) minus everything they owe (liabilities). Assets include bank balances, investments, real estate, vehicles, and lending receivable. Liabilities include loan principal outstanding, credit-card balances, and money owed to friends. Net worth is a stock measure — a snapshot at a point in time, not a flow like income.
Key points
- Income tells you cash flow; net worth tells you accumulated position. Both matter.
- Liquid net worth excludes hard-to-sell assets like real estate — useful for emergency planning.
- Monthly is the right cadence to update net worth for most households.
- Negative net worth is common early in a career (large student loans, no assets) and not a crisis.
Worked example
A household with ₹8 lakh in bank and mutual funds, a ₹40 lakh flat valued at ₹50 lakh with a ₹30 lakh loan outstanding, and ₹2 lakh on a credit card has a net worth of (8 + 50) − (30 + 2) = ₹26 lakh. Excluding the flat (illiquid) gives ₹6 lakh of liquid net worth — a more realistic emergency cushion.
Related
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