What is NET Worth?
Net worth is the value the assets a person or a company owns, minus the liabilities they owe. It is important because it provides a snapshot of the individuals or the company's current financial position.
With the advent of the fifth European Anti Money Laundering Directive (AMLD5), virtual asset service providers have come under increased scrutiny by national competent authorities, especially in relation to prohibiting money laundering and anonymous transactions, therefore Source of funds questionnaire has to include a question about your Net worth.
Net worth is calculated by subtracting all liabilities from assets. An asset is anything owned that has monetary value, while liabilities are obligations that deplete your resources, excluding primary residence and mortgages related with it.
Having a positive net worth means that your assets exceed liabilities, while negative net worth means that your liabilities exceed your assets.
Examples of liabilities (debt) include mortgages, credit card balances, student loans, and car loans, but exclude mortgages related to primary residence.
Examples of assets include checking and savings account balances, the value of securities you own (stocks and bonds), real estate value (excluding primary residence), the market value of your car.
Whatever is left after selling all of your assets and paying off your debt is your net worth.
Net worth example;
An individual owns a car with a market value of 25.000 € a holiday house with a market value of 300.000 € and other assets valued at 25.000€. These are his assets. The primary residence and mortgage associated with it does not count towards net worth.
Liabilities are an outstanding mortgage for the holiday house balance of 200.000 € and a car loan of 10.000€.
This individual's net worth would therefore be; [25.000€ + 300.000€ + 25.000€] - [200.000€ + 10.000€] = 140.000€