Difference Between Punishments and Trials
Question

                Allah mentions in the Quran that when an evil befalls us it is due to what our own hands have earned. Also our beloved Messenger, Muhammad (peace and blessings of Allah be upon him) said in a hadeeth (report) that the most tried are the Prophets, then those in piety after those. So therefore in our day to day life when things go wrong in our lives, how do we decide whether it is due to our sinfulness or that Allah loves us  and therefore sends a trial upon us?
Praise be to Allah.
    Punishments are what happen to people in 
    return for their evil deeds. Trials are tests which are sent to try people, 
    and people may be tested by good things or by bad.

    Concerning punishments, Allah says 
    (interpretation of the meaning): 

    “Whatever of good reaches you, is from 
    Allah, but whatever of evil befalls you, is from yourself…” 

    [al-Nisa 4:79]

    Concerning the phrase “is from yourself”, 
    Qatadah said: “[It means] the punishment is for you, O son of Adam, because 
    of your sin.” Abu Salih said that “whatever of evil befalls you, is 
    from yourself” means “because of your sin, and I [Allah] am the One 
    Who decreed it for you.” (Tafseer Ibn 
    Katheer).

    Allah also says (interpretation of the 
    meaning): “And whatever of misfortune befalls you, it is because of what 
    your hands have earned. And He pardons much.” 

    [al-Shoora 42:30]

    Ibn Katheer, may Allah have mercy on him, 
    said: “[It means] whatever misfortune happens to you, O people, is because 
    of evil deeds that you have already done, and ‘He pardons much’ refers to 
    evil deeds – He does not punish you for them but He pardons them. ‘And if 
    Allah were to punish men for that which they earned, he would not leave a 
    moving (living) creature on the surface of the earth…’ [Fatir 35:45 – 
    interpretation of the meaning].” 

    Concerning trials, the Prophet (peace and 
    blessings of Allah be upon him) said: “If Allah loves a people, He tries 
    them, and whoever has patience will have patience, and whoever is anxious 
    will be anxious.” (Reported by al-Imam Ahmad; Saheeh 
    al-Jami’, 1706).

    The Prophet (peace and blessings of Allah be 
    upon him) also said: “The extent of the reward will be in accordance with 
    the extent of the trial. If Allah loves a people, He tries them, and whoever 
    is content will have contentment, and whoever is angry will have anger.” 
    (Reported by al-Tirmidhi, 2320; Saheeh al-Jami’, 2210).

    The following outlines how one may tell 
    whether a given event is a punishment or a trial:

    If the misfortune results from doing an act 
    of obedience to Allah, such as being wounded in jihad, or losing money when 
    migrating for the sake of Allah, or losing a job because of becoming a 
    Muslim or increasing one’s commitment to Islam, then this is a trial. 
    Whoever bears it with patience will be rewarded, but if one reacts angrily 
    then one will earn the wrath of Allah. If the misfortune results from sin, 
    such as sexually-transmitted diseases or illnesses caused by drinking 
    alcohol and taking drugs, and so on, then this is the kind of punishment 
    that comes in this world (as opposed to being deferred until the Hereafter). 
    If the misfortune is connected neither to a good deed nor a sin – such as 
    other kinds of diseases and sicknesses, losing a child, or failing in 
    business – then it depends on the person’s situation. If he is good and 
    devout, it is a trial, and if he is sinful, it is a punishment.

    The misfortune may be a punishment to atone 
    for sins, or it may be a trial aimed at raising a person’s status and 
    increasing his hasanat (good deeds/rewards) – this may be determined 
    by whether a person is obedient or disobedient. A person should not praise 
    himself, rather he should criticize himself for his shortcomings and strive 
    to attain perfection. He will benefit from misfortunes in any case, if he 
    has patience and hopes for reward. 

    And Allah knows best.