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Whether you’re saving for a big purchase, preparing for retirement, or securing your future, it’s important regularly evaluate your financial situation.

Assessing your finances and knowing where you stand is important so you know where you need to make adjustments so you can meet your financial goals. Keeping an eye on your debt, income, spending habits, and investments can help. You can also use a debt consolidation calculator to see if consolidating your debt is the right move.

Here are 5 ways you can evaluate your financial health to help keep you on track.

1. Establish financial goals

Knowing what your financial and savings goals are will help you build a plan to reach those goals. Consider your short- and long-term savings goals and write them down. 

First, set a goal for an emergency fund. You should have at least six months of savings set aside just in case. 

Next, consider other purchases or investments you want to make. Are you saving for a car or a house? Do you want to go back to school? Have children? Know your goals, calculate the finances you need, and document those needs so you can properly prepare. 

2. Calculate your net worth

The next step is to understand your net worth. You can calculate this by adding the total value of all of your assets (like cash, investments, savings, home value, etc.) and subtracting your liabilities (such as student loans, car loans, credit card debt, mortgage, etc.).

Don’t include your income during your calculations. Instead, you’re trying to figure out how much you currently have vs. what you still owe. 

Even if you have a negative net worth, it’s OK. Make note of where you stand, track it regularly, and work consistently toward a positive net worth. 

3. Calculate your debt-to-income ratio

Next, consider your income. Calculate the total amount of your monthly debt payments and divide it by your monthly gross income. Gross income is what you make before taxes and other deductions, like health insurance.

The percentage of your debt divided by your gross income is your debt-to-income ratio (DTI). It’s recommended to have a ratio of 30% or lower, but the lower the better. 

Knowing this percentage can help you understand if your debt is under control, or if you have more debt than your income can handle. Your DTI can also negatively affect your credit score if it’s too high, making it difficult to get approved for a loan (like a mortgage). 

4. Keep track of your spending

Create a budget and stick to it. You should know where and what you’re spending money on. If not, look at the last three to six months of spending and write down all of your expenses. Figure out what’s necessary, such as bills, and what’s not, such as dining out and that gym subscription you don’t use. 

You can track with a spreadsheet, app, or good ol’ pen and paper. The important thing is keeping tabs on where all of your spending happens and figuring out where you can cut back—and what you can start putting into savings. 

5. Develop (or evaluate) your investment strategy

Whether you are or aren’t currently investing, it’s time to evaluate your strategy. Either way, contributing to a 401(k), Roth IRA, stocks, bonds, mutual funds, or another type of investment is a great way to help grow your savings and finances. 

There are both high- and low-risk investment opportunities, with a variety of terms and conditions depending on your goals and wants. Do some research or talk with a financial advisor to learn which strategy may be right for you. 

By Caitlyn Callahan

Caitlyn is a freelance writer from the Cincinnati area with clients ranging from digital marketing agencies, insurance/finance companies, and healthcare organizations to travel and technology blogs. She loves reading, traveling, and camping—and hanging with her dogs Coco and Hamilton.