How to Assess Your Financial Situation

Whether you are facing a concerning financial situation or not, you may be compelled to assess your financial situation to ensure you can pay necessary expenses.

Evaluating your financial situation is an important step in securing a stable economic future. However, you may not know exactly how to determine your financial situation accurately because it involves more than basic calculations.

A proper assessment of your finances may require you to check the value of your possessions or estimate the value of your investments or policies to project your net worth. Additionally, you may need to find your sellable assets and compare them with your liabilities. Because your financial situation is complicated and unique, you should not leave any calculations to chance. You can learn how to safely and correctly assess your financial situation below.

What to Consider When Assessing Your Finances

Your financial situation depends on various factors. Because of this, determining your financial status compared to others is challenging. However, a few, simple considerations can be examined to measure your financial situation and help you determine if you need to make financial improvements. Also, these considerations can give you a greater understanding of the resources you own.

The first things you should consider are your assets and liabilities. Your assets are commodities that you own whereas liabilities are expenses (i.e. what you owe), which may be continual or periodic payments. A comparison between your assets and liabilities is often called a net worth statement. Knowing what your assets and liabilities are can help you calculate your financial situation. If your liabilities outweigh your assets, then you may not be in a financially stable situation. Additionally, if your assets consist of primarily the same type of assets (e.g. personal assets) or if your assets are not easily liquidated, then you may need to diversify your portfolio to seek more financial security

While similar to assets and liabilities, your debt and income reveal other aspects of your financial situation. Ideally, you want a low amount of debt compared to your income. Lower debts not only reduce your monthly expenses but also enable you to save more money to afford new assets that you may want such as a car or house. To gauge your monthly debt-to-income ratio, you should divide the amount you owe by the amount you make.

Because a common determinant of financial success is the amount of retirement contributions, investments and savings you have. Having a lot of money and resources designated for future security like these is often a sign of financial wellness. You are encouraged to analyze your contributions to your retirement, investments and savings accounts annually to receive an accurate summation of your economic status. Meeting your retirement and savings goals gives you added stability and confidence in your financial situation.

Finally, you should always consider your credit history when assessing your financial status. Finding errors in your credit report can prevent serious issues and managing your credit account can make you more inclined to pay your bills timely and, consequently, increase your credit score. Maintaining a high credit score is essential when you need to take out a loan, regardless of the reason. Therefore, higher credit scores coincide with better financial backing and surety.

What is your net worth?

The most straightforward way to assess your financial situation is to complete a net worth statement. As mentioned above, your net worth includes what you own and what you owe to depict a clear picture of your available resources. You can utilize your net worth to find financial problems you may otherwise overlook, and the results can help you track expected and unexpected changes in your spending and earnings or the financial market. To estimate your net worth, you must categorize your assets and liabilities. You should divide all your assets into the following categories:

  • Cash: Either physical cash and change or items that can be converted into cash. These include checks, certificates of deposit (CDs) and money orders.
  • Investments: Assets that can be liquidated or sold for their current market value (e.g. bonds, annuities or stocks).
  • Retirement assets: These assets are in specified retirement accounts like 401(k) plans, IRAs and pensions and are often tax-advantaged.
  • Personal assets: Personal property that can be sold, including real estate. Other personal assets may include vehicles and furniture.

When recording your assets, be sure to write the current date at the top and the amount each asset is worth. Additionally, you should total the value of all your assets


Liabilities receive their own section on the net worth statement and include the outstanding balances of any loans and credit cards you may have (not the monthly payments), your overdue bills and taxes. All bills and taxes should be included in your liabilities.

Once you have all assets and liabilities totaled, you must subtract the total amount of liabilities you have from the total value of your assets. The resulting number is your net worth.

Note: You should use vehicle guides, shopping malls, real estate sources, financial websites and other resources to determine the current value of some assets instead of listing the original cost of the asset.

Questions You Should Ask Yourself

In addition to finding and organizing pertinent financial information into a net worth statement, you should ask yourself certain questions regarding your finances. A list of important questions you should ask yourself to better assess your financial situation is as follows:


  • Do I have enough money in savings to cover at least three months of expenses? Since unexpected expenses are a part of life, you are advised to have money to cover them. Generally, financial advisors such as Wells Fargo suggest maintaining enough savings to cover three to six months of your expenses. To remain financially stable, you should regularly donate to your savings accounts.
  • Am I behind in any of my payments? You should always keep up with payments to avoid debts and overdue fees. Paying overdue bills can greatly increase your financial status.
  • Can I include any other assets that are not listed in the net worth statement like education, experience and skills? While these assets do not correspond to dollar amounts, they can empower you and your family to attain higher-paying jobs or improve relationships with friends that can lend you money in dire circumstances or offer their assistance in other ways.
  • Has anything changed in my life recently? Ultimately, financial success depends on your economic goals, so changes in your life may affect your financial status significantly. Getting married, having children or retiring can alter your financial goals. You should constantly update your financial plan to ensure you can afford any anticipated expenses.
  • Is my insurance coverage financially efficient? Accepting higher deductibles and umbrella policies can lower the cost of your homeowners’, renters’ and auto insurance. For life insurance and disability coverage, you may want to reassess how much coverage you really need. Do some research to find the most affordable policies that grant you the best liability coverage.

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