Money is the key to a comfortable life, and knowing exactly where you stand financially can be a liberating feeling. However, if you do not understand your finances, you could open yourself up to a lot of confusion and hurt.

Evaluating your finances is a skill everyone should have. It should be done on at least an annual basis. There are a number of ways to go about this, here’s one of the simplest.

Calculate Your Net Worth

Make a list of all of your assets—cash on hand, savings accounts, real estate, investments and other appreciating items owned. Then, make a list of all of your liabilities, such as credit card debt, mortgages, car loans and the ilk. The difference between your assets and your liabilities is your net worth. If it’s positive, congratulations! Do everything you can to keep it that way and grow it. If it’s negative, it’s time to take a look at your spending habits and rein yourself in.

Examine Your Debt

Did your financial obligations increase or decrease over the past year? If your obligations increased, what do you have to show for them? In other words, if your debt expanded because you used it to acquire a new home or some other appreciating asset, that’s probably OK. On the other hand, if your debt increased and you have nothing to show for it, except a new car, furniture, some new clothes, jewelry, a vacation, dinners out and the like, you need to check yourself.

You might well be on track to wreck yourself.

If you find you’ve already veered into the wrecked territory, it might be a good idea to consult the services of a company like Freedom Debt Relief to help you reverse the trend. If you’re in a situation in which you’re having trouble even making the minimum payments on your debts, these firms can help you negotiate lower interest rates, as well as forgiveness of fees and even a portion of the principal amount owed in some cases. However, if you go this route, be very careful to avoid getting into trouble this way again.

Savings and Investments

Did your savings accounts grow over the past year? Ideally, you have more than one. You have the account in which your squirreling away funds for retirement. You have another account in which you’re keeping cash on hand to deal with emergency situations and you might have another one for holiday gifts or a child’s education. Whatever they are, their value should increase year over year. If they decreased, try to determine what happened and figure out how can you prevent it from happening again this year.

Ditto your investments.

Review their performance on an annual basis and decide whether it’s time to change things up a bit to generate more growth.

Credit Report/Credit Score

Reviewing your credit report on at least an annual basis is key to your financial health. Given you can get it for free, not doing so really doesn’t make sense. In addition to knowing where you stand should you ever need to apply for a loan, you’ll also get a leg up on any errors it might contain before they fester too long and become difficult to correct. Meanwhile, knowing a close approximation of your credit score will come in handy when you’re negotiating the terms of a loan. If your score is strong, you’ll qualify for better rates, which will mean less cash out of your pocket in the long run.

Evaluating your finances each year is a necessary aspect of maintaining a healthy economic picture for your household. Make some time to do it at the beginning of each year and plan improvements based upon your findings.

Read Also :

• Using a Trust Deed to get your finances back in check
• How to Keep Track of Your Personal Finances When Busy With Your Business
• 5 Simple Rules for Managing Your Personal Finance