Step 2

Welcome to Language Learning!

Bienvenidos. You’ve probably taken a Spanish course, or some kind of second language course as part of your education, and you had to learn vocabulary on the first day. Learning to become financially literate is similar. Once you learn the vocabulary, you’ll be able to piece together the meanings of sentences, and suddenly you’ll find yourself understanding personal finance. You’ll be able to translate all those things people have been talking about, like credit scores, high interest loans, and ETFs, and a whole world of opportunities will open up to you.

Throughout this blog, we’ll do our best to provide simple definitions and explanations of complicated financial concepts. If you run into a word or concept you don’t understand, make sure to look it up and take notes. Don’t judge yourself too harshly. 

Take your time to learn, and trust that you will be able to understand personal finance. You are smart and capable, and it’ll be incredibly rewarding to follow through and learn these concepts.

Concept 1: Where are you starting and where do you want to be?

Let’s calculate your net worth. Your net worth weighs the value of everything you own, and everything you owe, as a way to measure your total wealth. 

This is an exercise to see where you are at this point in your life. If you don’t face where you are now, you can’t set clear goals for where you want to be. Plus, this exercise will let you track your wealth over time. If you’re reading this blog, you most likely want to grow your wealth over time, and you’ll be able to track your success through this number.

To measure your net worth, you’ll add up all your assets and subtract your liabilities. I know this is starting to look like math but it's a very simple addition and subtraction problem so please bear with me! 


Net Worth = Assets - Liabilities 


What the heck is an asset? An asset is something you own including cash or things you could sell that have value. For the sake of this exercise, you don’t need to go around your room adding up the amount all your Switch games are selling on eBay. Instead add up the following (it’s perfectly okay not to have some of these assets, just set the amount as zero if you don't have them):


Assets = Amount in your Checking Accounts + Savings Accounts + High Yield Savings Accounts + Retirement Savings + Real Estate Investments + Car Value + Other Things of Value

I typically don't include my car and other things of value in my net worth, because my car is a depreciating asset (will cover this later), and the most valuable thing I own is the computer I'm writing this on (which is worth around $900 now).


Now what is a liability? A liability is money you owe, or something you owe money on. Add up the following liabilities (and any I might have missed adding into the equation, like money you owe your little brother): 


     Liabilities = Amount of Student Loans + Credit Card Debt + Mortgage + Medical Debt + Auto Loans + Unpaid Taxes + Personal Loans + HELOC + Any Other Outstanding Debts


Now, to calculate your total net worth, plug in your numbers below: 

Net Worth = Assets - Liabilities 

Say Aunt Becky has $10,000 in assets and $6,500 in total debts. Her total net worth is:

Net Worth = $10,000 - $6,500

Net Worth = $3500

Considering most Americans have a negative net worth due to debt, that actually is a great starting point! 

I highly recommend starting a money journal, where you write your goals and intentions about money down. In your first page, you can write your current net worth. Here are some journaling prompts to get started.