How To Quickly Evaluate Your Finances

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Evaluating your financial health is vital to understanding where you stand and where you will and can be in the future. Having a clear understanding of your finances will help drive everyday decisions. Can I purchase a new car? A new home? Can I retire? Should I downsize my car/home? Should I have 5 more kids? These are brief examples of questions that can be answered by knowing where you stand financially.

How can you evaluate your financial health? Here are the primary items to consider.

Gross and Net Earnings

Gross Income – the amount of money you earn before anything is deducted. It’s a number you easily know and generally used by lenders when determining debt to income calculations.

Net Earnings – this is your take home pay. The amount you receive after items like taxes, health insurance and retirement savings. Net earnings is the number to focus on when working on your budget.

The question to ask yourself is “am I spending less that I’m earning.” It’s important to not just guess, but to review your spending and clearly identify the answer. Your monthly obligations should not require more than 40-50% of you should not be spending more than you earn.

Retirement Savings

When the exciting day comes and you retire, you’ll no longer be relying on your employer/company for income. Your retirement savings will be your lifeline so make this a primary focus. Save as much as you can as early as you can and enjoy compounding returns.

At a minimum you should be saving what your company will match. If you can save more the 2020 limits for 401k contributions are $19,500 with an additional $6,500 catch up contribution for those 50+.

Emergency Fund

An emergency fund is your savings set aside for unexpected expenses. That could be for a home repair, medical issue or job loss. Your goal should be to have 12 months of expenses set aside. If you lose your job you’ll still be able to pay your bills while you search for a new one.

If you don’t have 12 months of expenses saved up don’t worry. Make your initial goal to save 3 months of obligations, then 6, 9 then 12 months.


If your emergency fund is fully funded with 12 months of expenses, it’s time to start thinking about funding a longer term savings vehicle. That’s where an investment account comes in. These funds are either earmarked for uses that are 2+ years away or with no use in mind. Investing provides the potential to get a better return than a savings or money market account.


Your debt consists of all that you owe. This might be a mortgage, student debt, credit card balances and car loans. Debt isn’t all bad thing but not all debt is alike. If you have more debt than assets or if your debt payments aren’t manageable, constructing a debt payoff plan is crucial.

It’s important to note that you want to keep any revolving debt below 30% of available commitments. Revolving debt consists of credit cards and home equity lines of credit. If your credit card has a commitment of $5,000 (that’s the amount available to use) you should try and keep the uses below $1,500.


An assets is anything of value that can be converted to cash. Your assets may include your cash, investments, properties, car and any other types of personal property. The key to including assets in your net worth is if you can truly convert these items to cash in a reasonable amount of time.

You can calculate your tangible net worth by subtracting your debt from your assets.

Credit Score

Your credit score is basically a scorecard lenders use to see how likely you are to repay debt. It’s a report that shows what debt you have, your history of payments as well as your utilization of credit lines (credit cards, lines of credit). FICO scores are the most widely used by lenders which stands for Fair Isaac Corporation.

Every lender will have it’s own range of what it considers poor, good and excellent and I’ll share what I’ve always considered to be a guideline.

Poor – 649 and below

Good – 650 to 749

Excellent – 750+


Insurance provides peace of mind in case anything happens to your major assets. The most common types of insurance are home owners, car, renters, life and disability insurance. Your insurance should replace the value of your major assets dollar for dollar.

Next Steps

If you find that you’re not as financially healthy as you hoped, don’t stress. Less than 30% of Americans feel they are financially healthy as of writing this post. You can take steps to improve your financial position.

  • Are you spending more than you earn?  Yes? Create a budget
  • If your debt and more importantly revolving debt (credit cards, home equity lines) is too high, create a payoff plan
  • If you feel that you’re in good financial health, try directing more towards your investments 

Being financially fit takes constant effort and is ever changing.  If you’re not where you want to be now, don’t get frustrated.  Getting yourself in a great financial place is a marathon, not a sprint.                                                                          

Paul W

Hello! I'm Paul, finance expert and founder of The Income Finder. With over 15 years experience in the finance industry, a bachelors from Benedictine University and MBA from DePaul, I'm well qualified and ready to share great insight and tips on money management. Read More