Answer to Question #111476 in Management for Laurent

Question

What is the meaning of the statement that your net worth is the equity you have in your own life?

Answer 1

Equity can be described in business terms as the sum of all assets that a person has acquired less than the liabilities that they owe. Equity is generally the difference between the assets and the liabilities. For example, an individual can be owning assets worth 5000 US Dollars and owing to other people liabilities worth 2000 US Dollars. For this case in the example, the person’s equity is worth 3000 US Dollars. Whenever a person purchases an asset or inherits a property, their equity tends to rise. Loss of property or continual unproductive liabilities has got a negative implication of reducing an individual’s equity.

Net worth on the other hand directly relates to equity. Net worth and equity can be used in place of each in a different context to relay specific meaning. Net worth when used to describe accounts in a company means the overall book value of the whole company incorporating even the owner’s investment in the company. However, a person's value that is invested in the company is referred to as equity investment. Individuals may also refer to their balances between the assets and liabilities invested in a company as personal net worth. In general terms, an individual’s net worth can be referred to as their equity in their possessions.