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How to Evaluate Your Personal Finances

By Jacqueline DeMarco · March 19, 2021 · 5 minute read

We’re here to help! First and foremost, SoFi Learn strives to be a beneficial resource to you as you navigate your financial journey. Read more We develop content that covers a variety of financial topics. Sometimes, that content may include information about products, features, or services that SoFi does not provide. We aim to break down complicated concepts, loop you in on the latest trends, and keep you up-to-date on the stuff you can use to help get your money right. Read less

How to Evaluate Your Personal Finances

We all want to improve our money-management habits, but sometimes the path on how to achieve this goal is a little unclear.

If someone is looking to take their financial health to the next level, they can follow these seven steps to gain control of their spending and money.

Tips for Evaluating Your Personal Finances

1. Determine Your Net Worth

A net worth gives an overarching view of someone’s personal finances. Sitting down and taking time to calculate their net worth each year can help consumers adjust their financial plans as needed. A net worth takes into account everything someone owns and everything that they owe.

To calculate a net worth, take out a pen and paper (or computer document) and make a list with two sides. On one side, they will list the assets that they own. On the other side, they will list liabilities or debts, which is what they owe. Then they’ll subtract their liabilities from their assets.

Assets can include money in savings, checking, investing, or retirement accounts; real estate like one’s home; cars; as well as stakes in businesses; or valuable personal goods like jewelry or art. Liabilities can include student loans, automobile debt, mortgages, or credit card balances.

If someone finds that their assets are greater than their liabilities, that means they have a “positive” net worth. On the flip side, if they owe more than they own, they have a “negative” net worth. If the net worth is negative, they shouldn’t feel bad. They just need to adjust their financial plans in a way that will help them work towards paying off debt and then working to build up more assets.

2. Plan a Budget

One way consumers can improve their financial health is by following a budget that takes their financial goals into account. A budget is a plan that someone can follow that will help determine how much money they spend each month.

Budgeting properly can lead to saving money each month to invest or put towards a large financial goal, like a down payment. A budget should illustrate how much someone makes and how they spend their money.

Budgets come in handy if someone needs help guiding how they spend their money. While some expenses are fixed — like rent — others can be tempting to overspend on — like entertainment, eating out or daily lattes — without a budget in place.

To create a budget, start by gathering all bills and pay stubs. Alternatively, there are now many mobile apps, such as SoFi Relay(R), which can keep track of your spending and income. Such apps can analyze your financial trends for you and will be easily accessible in your pocket always, but make sure to research the mobile app’s safety and security features since they’ll be holding your personal information.

Subtract any expenses from income to discover how much room if left in a budget. From there, it gets easier to determine what consistent expenses to cut and how much to spend on variable expenses (like clothing or travel). Don’t forget to budget for less visible expenses like saving for retirement, an emergency fund or paying down debt.

3. Evaluate Housing Costs

After creating a budget, housing costs are likely top of mind since they tend to be one of our largest monthly expenses. Taking a hard look at how much your rent or mortgage payments are taking a bite out of your monthly budget can be helpful.

A general rule of thumb in personal finance is that you shouldn’t spend more than 30% of income on housing costs. This allows individuals to be able to afford other discretionary costs.

If someone is spending more than that on housing, they may want to consider finding a more affordable option so they can make room in their budget to pay down student loan debt or to work towards other financial goals.

4. Determine Your Debt to Income Ratio

Speaking of debt, determining a debt to income ratio can give consumers a better idea of their financial health. A debt-to-income ratio takes monthly debt payments and divides them by gross monthly income.

Lenders often use a debt-to-income ratio to determine if a borrower will be able to make their monthly payments. If someone is planning on buying a home or taking out an auto loan, they’ll want to keep their debt-to-income ratio on the lower side. Working debt payments into a budget is a good way to stay on track towards lowering this ratio.

5. Refine Your Investment Strategy

Investing can be intimidating, which is why it’s important to gain a clear understanding of how it can help you work towards financial goals in a comfortable way. Investing inherently carries some risky because there’s a chance of losing some money rather than simply saving money in an FDIC-insured savings account.

However, those who stash cash away in savings accounts should remember that the value of their money is actually depreciating due to inflation, the tendency for the price of goods to rise over time.

Investments like securities and mutual funds aren’t federally insured and losing the principal amount invested is possible. It’s also possible to profit off investments, and diversifying investments can help mitigate risk. By spreading investments across multiple assets, if one investment loses money it can sting a bit less because a more successful investment may very well make up for that loss.

Recommended: Why Portfolio Diversification Matters

Diversification can’t guarantee success and if the market drops as a whole, all of a consumer’s investments can suffer as a result, but it can improve the chances of not losing a lot of money or all of it at once.

6. Determine Your Risk Tolerance

To determine which saving and investment products are a good fit, consumers need to understand what their risk tolerance is. For example, if someone is young and has 35 years of working left before they retire, they may feel more comfortable making a riskier investment, such as stocks, that can lead to bigger gains down the road.

Those who are 60 may feel differently and may want to go for a safer bet, such as in the bond market. Generally, if someone is pursuing a short term goal, it’s better not to choose a risky investment as the chances of profiting during a short period of time are not gauranteed.

Consumers can familiarize themselves with their investment options to help determine which they’ll be most comfortable with. There are plenty of investment products to choose from like:

•  Stocks
•  Mutual funds
•  Corporate and municipal bonds
•  Annuities
•  Exchange-traded funds (ETFs)
•  Money market funds
•  U.S. Treasury securities

Before making any type of investment, it’s also important to understand what kinds of fees are associated with holding the investment or buying or selling as part of the investment strategy (like when investing in the stock market).

Having a solid investing strategy can make it easier to save for retirement or college and to make hard earned money grow.

7. Set Financial Goals

Once someone has evaluated their personal finances, they’ll have the insight they need to set clear financial goals.

After considering what they want their money to help them achieve (pay for a wedding, vanquish credit card debt, retire early, etc.), they can create a financial plan for reaching those goals by listing their goals by which are most important to them.

They can then put together a timeline, like a monthly savings plan, that will help them meet those goals.

The Takeaway

From mortgages, tuition bills, utility costs to taxes, modern life throws at individuals all sorts of financial obligations that they need to juggle. This has made evaluating one’s personal finances to often be a tricky task.

Individuals can, however, wrestle control over their financial future by tracking spending habits, changing them if necessary, and making thoughtful, realistic budgets.

If overspending is getting in the way of reaching important financial goals, SoFi Relay can help make staying on track easier. Users can work one-on-one with a financial planner to set goals for their money and track their financial habits to make sure they’re on their way to achieving those goals. It also offers free credit monitoring in a way that won’t impact your credit score.

Sign up for SoFi Relay today.


SoFi’s Relay tool offers users the ability to connect both in-house accounts and external accounts using Plaid, Inc’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score provided to you is a Vantage Score® based on TransUnion™ (the “Processing Agent”) data.
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