Step 1: Adjust the Truss Rod
To check the tension on the neck, first make sure the guitar is properly tuned. Then place a capo on the first fret and press down the first string at the 14th fret. Now check the clearance at the 6th fret. You should be able to just fit a piece of heavy card stock (index or business card) under the string at the 6th fret. Tighten the truss rod to decrease the clearance. Loosen the truss rod to increase the clearance
The diagram was found at: http://www.taylorguitars.com/global/pdfs/truss_rod_adjustment.pdf
Step 2: Check the Neck Angle
Step 3: Check the Neck Angle
Step 4: Correcting the Neck Angle
***I should confess that I didn't decide to put together the instructable until the project was underway. The image shows the bridge after I had already started sanding it (which is no secret from the way it looks). Originally it was even higher.
Step 5: Correcting the Neck Angle
Since we can’t easily change the plane of the neck, the only option is to adjust the bridge. I sanded off about 1/8 of an inch to get the bridge inline with the fretboard.
Since the thickness of the bridge can affect the sound of the guitar, I decided to cut a few string grooves behind the saddle to minimize the amount I lowered the entire surface.
***I've had a few questions about why it is necessary to lower the bridge in addition to lowering the saddle. Here is an answer I posted:
The other reason (maybe more obvious) is that if the neck is misaligned you could shave the saddle all the way down to the groove it sits in and still not have the action low enough. In the case with the guitar pictured, I ended up sanding down the saddle to a point below the original plane of the bridge. If I didn't sand down the bridge the saddle wouldn't have even risen out of the groove!
Step 6: Adjusting the Nut
Step 7: Adjusting the Nut
Step 8: Adjusting the Nut
Step 9: Adjusting the Saddle
The top should be slightly contoured to allow the thinnest strings to sit a little lower. The overall action varies based on preference but a clearance of 3/16” above the 12th fret is a typical rule of thumb. I recommend buying a few acoustic guitar saddles (I found them online for $1.50 each) to allow the freedom to experiment and find the best setup.
Step 10: Finishing Up
Going through these steps may take some time but it will be worth the effort. Now that you know what to look for, the next time you walk through a guitar shop check these parameters on a few guitars and you will be surprised at how variable the factory setup can be. It will put a smile on your face when you compare the playability of your properly adjusted $80 guitar to some costing several hundreds of dollars but still in need of a little work.
The image shows the final result with the saddle mounted and a fresh coat of varnish over the bridge.