The definition of net worth has been debated and you’ll often find many answers as you search for the meaning of net worth. The standard answer for net worth goes something like this:
“Assets – Liabilities = Net Worth”
The struggle comes in describing what an asset is and what true liabilities are. Is a house an asset, or liability, is a business an asset? How do you calculate the actual value?
Some even argue that cash is the only true asset because it’s the only thing you can rely on at any given money. That is, of course, if the economy itself holds up. If you may recall (or at least recall in images) during the great recession a wheelbarrow of money wasn’t enough to buy a loaf of bread because of massive inflation.
Although the definition of net worth is fairly straight forward from a mathematical perspective, there’s one definition that I really like because it sums up what’s really behind your net worth.
Net Worth Without the Numbers
Although this may seem a bit like fluff one of the best definitions of net worth I’ve ever come across was simply this:
“What Value You’ve Provided to Society – What You’ve Consumed from Society”
Money flows to value and opportunity. Through free markets supply and demand naturally dictate prices (although sales ability helps). Likewise what you’ve taken from society should be less than what you’ve given from society.
If you have a lot of knowledge, and you leave it in your head, you haven’t provided any value to society. However, the more people you help, the more you typically make. This of course, if over simplified but the principles remain constant.
The more people you help by providing solutions to their problems or adding comfort to their lives the more value you’ve provided to society, which then means the more money you’ll often make.
Are Some American’s Not Valuable?
The funny thing about a definition like the one above is that you begin to realize that there are many people with a negative net worth in America. Does this mean that they provide less value than they consume?
The simple answer could be yes, or this may also mean that they aren’t good at negotiating their true value or showing the public what they’re worth by doing menial tasks or jobs that aren’t in line with their abilities.
What we can learn from the simplest definition of net worth is that if you want to increase your net worth, add more value to society, decrease what you take from society, or do a combination of both.
Based on the simple definition of net worth are you giving more value to society than you’re taking?