Some say ignorance is bliss. However, regarding your finances, this is not the best policy to apply. Looking the other way regarding your finances might be easier, but taking stock of your financial situation is the solution to improvement. Learn what areas regarding your finances you need to evaluate now and how to make the necessary changes to live your best financial life.

Evaluate Your Financial Condition

You’ll need to zero in on the aspects of your financial health that you could change to maximize the potential of your money. Examining and adjusting your expenses, income, debt, and retirement savings accordingly will improve your financial situation.

Assess Your Expenses

You’ll need to start with a factual account of where your money is going. You can use a spending tracker to narrow your spending to an accurate monthly total. Expenses that you’ll want to focus on include:

• Cell phone
• Debt payment
• Eating out
• Education and children
• Entertainment
• Groceries and other supplies
• Health expenses
• Helping others
• Housing and utilities
• Pets
• Transportation
• Other

Expenses can also include money spent less frequently than once a month, such as car repairs, insurance payments, medical expenses, or seasonal vacations. Regular savings contributions also count and don’t forget about fees you might share with others. You can obtain totals by collecting receipts and reviewing your checking account and credit card history.

Add Up Your Income

Once you arrive at an accurate expense total, add your income to see how they compare. You’ll want to see that there is more money left over every month than not.

Consider Your Debt

While debt payments, such as mortgages, car payments, and credit card charges, can be a part of your expenses, you should examine this portion closely. Your debt-to-income ratio, the percentage of your monthly income that goes to debt payments, is important in comparing how your expenses measure up and can also impact lenders when you apply for more debt.

A 36% or lower debt-to-income ratio is the percentage lenders generally accept, but you should try to keep it under 30%. The ratio is calculated by dividing your monthly debt payment by your monthly income.

Review Your Retirement Savings

Determining how much of your income you should set aside for retirement depends on a variety of factors, including:

• When you plan to retire
• Your planned retirement lifestyle
• When you started saving
• How much you already saved

However, putting those factors aside, your goal should be to typically save at least 15% of your pre-tax income each year. These savings can include employer match funds that help contribute to your retirement plan.

How To Make Needed Adjustments for Financial Improvement

When checking your bank statements, the amount you usually have in your account each month should match what your budget says you should have left over. If there’s a discrepancy between the two numbers, you must re-examine your actual spending totals to see if you missed something.

If your income total is less, the same, or barely above your expense total, evaluate your expenses to see where you can cut or eliminate, especially if the undesirable difference is due to debt. You can lower your debt obligations by doing the following:

• Transfer balances to lower interest rate accounts
• Pay off debt with the highest interest rates or the smaller debts first
• Talk to your debt holders to see if balances or interest rates can be negotiated
• Stop creating new debt
• Pay more than the minimum due
• Consider credit counseling

Once you start chipping away at where you can lessen your expenses and debt, you’ll have more money to spend or save as you would like.

Facing Your Financial Situation Provides Peace of Mind

Taking a close, hard look at your financial situation may not be a pleasant experience at times, but it can increase your wealth for a more comfortable and secure lifestyle in the long run. Plan to start your financial revival journey this year for better financial well-being.