How to Assess your Finances

Step 1

Know your income. The first thing you should do in assessing your finances is to know your income and its sources. Identify and prepare a list of all your sources of income. Income is whatever money that comes in your doorstep. This may include your salary, rentals, interest from savings, profits from business and other benefits which you receive in a regular basis. You must also include other sources of income such as income from sideline activities and part-time jobs such as tutoring, online writing, and sales on ebay. You must add all your income from these sources to come up with your income for the month.

Step 2

Know your expenses. Prepare a list of all your expenses for the month. This will include expenses in maintaining the household such as water, electric, telephone bills. Always keep a receipt of each bill. Also include in your list of expenses the amount you spend for weekly groceries, credit card bills, taxes, medical bills, monthly installment for appliances and any other items which you spend. It is also important to classify which of those expenses are unnecessary in order to avoid them. Ask your bank a monthly report in your financial activities which includes deposits, withdrawals, and mortgages. Sum up all your expenses for the month to arrive with your total monthly expenses.

Step 3

Making a balance sheet is very helpful and easy. Basically subtract all your expenses from your income. Using this method, you will know whether you are spending more than what you are earning or you have savings. Knowing that you have spent more what you have earned will allow you to identify which areas or items have you overspent and try to decrease or illuminate them the next month. It is basic that you should be able to live within your means so that you will be able to save for future commodities such as retirement, college education, or a new car. You can also prepare a balance sheet to know your net worth. This may be done by adding all your assets such as your income, savings account, value of your house and lot and the value of your car. Then you have to subtract all your liabilities from your assets. Liabilities may include everything you owe such as payment for educational plans, loans, household expenses and taxes. You are considered well-off if your net worth is positive and if it turns to be negative, you must cut down your expenses and on your borrowings. By knowing your financial standing, you will be able to assess whether your finances are within your reach.

Step 4

Compare your expenses with the previous months. Comparing your current and previous monthly expenses and balance sheet will allow you to gauge if your financial assessment is working. It is important to be honest in recording your finances because there is nobody to fool except yourself and nobody else would suffer or benefit from it. This will also allow you to plan ahead for the next month’s budget. Knowing your weak areas and areas which you are good with will allow you to make sound financial decisions in the next preceding months. Also, knowing that your finances have gone down and you have reached your target will make you feel better and you can share your success stories with your friends!