Although affluent people’s net worth is regularly discussed, very few people are fully aware of what this statistic actually means. How is it determined?
According to Bloomberg’s Billionaires Index, Steven Spielberg was the richest person in the entertainment industry as of the end of 2022. Once more, the film director came in at the top of the list with a stated net worth of $7.25 billion and an annual income of $150 million (data from Celebrity Net Worth). Net worth is a term that is frequently used, but what does it actually mean?
In simple terms, net worth is the value of a person’s wealth including their income and total assets – after subtracting debts. These hard assets can take different forms, for example: stocks, shares and bonds, real estate, art, cars, and many other valuable or collectible goods. Debt or liabilities can take various forms as well, including loans, credit card debt and so on.
The majority of the wealth held by many of the world’s richest people is not derived through their labour or income; rather, it is reflected in the various assets they own.
Why is it so challenging to determine one’s net worth?
While calculating a person’s annual income is straightforward, it is more difficult to add up all of their tangible assets and determine their overall value. Thus, estimating net worth when discussing the ultra-wealthy can be very challenging.
First, because many wealthy people tend to hide the true value of their assets to avoid paying taxes. The Pandora Papers which were released through an international investigative effort found that many world leaders and business owners were taking advantage of weak tax codes, loopholes in the system, and at times using illegal accounting practices to hide their wealth in offshore accounts.
The Pandora Papers listed a person’s name.
More than 300 public figures were listed, including 35 living and deceased world leaders including Jordan’s King Abdullah II and Russian President Vladamir Putin.
How to Determine Your Net Worth
You can sum up the value of all your assets to get your net worth, and then deduct the entire amount of debt you have outstanding. Your net worth would be $53,000, for instance, if you had $50,000 in savings, $5,000 in checking, and $10,000 in other assets (jewellery, a car, collectibles, etc.), but also had $10,000 in student loans and $2,000 in credit card debt.
You have $65,000 in assets and $12,000 in liabilities, which is why.