Agree with @sketch42, make sure you measure your bit before you adjust anything else to make sure it’s actually the right size. I’ve found my 1/8" bits vary from .122"-.126".
We’re all still learning here, no worries. 
Check out this forum to see how to change the settings in Machine Inspector: Z axis not accurate - #7 by AaronGnade
You need to back out of Machine Inspector to move X and Y, but you should only have to do it a few times on each axis before you get it dialed in.