The most simple definition of net worth is the number you get when you add up the value of your assets and subtract everything you owe. That's really all there is to it, but let's go through an example just to clear it up.

Jenny Smith is a pretty normal American. She has a mortgage and retirement account, but she's not so good at saving money. It must be her weakness for expensive fabergé eggs. So she has some credit card debt and a loan for her three-year-old car. Let's figure out her net worth.

House value:               $240,000
Mortgage owed              -170,000
401(k) retirement account:   40,000
Credit card #1:             -14,000
Credit card #2:              -7,000
Car value:                   13,000
Car loan:                    -9,000
Savings account:              1,300
                          ---------
Jenny's Net Worth:          $94,300

There, Jenny's not doing so bad overall, though she has very little cash that might be necessary in an emergency, and lots of high-interest credit card debt that will cost her. What net worth you should actually expect to have at some point in your life depends on a few factors and is open to debate, so I'll leave that one for later. It's pretty clear though, that the higher, the better -- it gives you more flexibility, as we talked about in the previous post.

One last note: technically, net worth includes the value of assets that are not liquid (easily turned into cash), like furniture and jewelry (and fabergé eggs). Whether you should count them depends on why you're calculating your net worth. If you want to give yourself a good feeling with a higher number, go for it. But those things have little bearing on how you're going to get out of debt, or how well you're prepared for retirement, so I prefer to leave them out. If you do include them, remember that their value is how much money you could get for them now, not how much you paid!