Depending on the current state of your finances, financial freedom might seem a long way away. For many people, financial freedom—when you don’t have to worry about how to pay the bills and your money is invested and making money for you—is a far off dream.  What they don’t understand is how close financial planning can get them to that dream.

Financial planning isn’t all staring at ledgers and creating spreadsheets, although if you like that sort of thing you’re welcome to do it. It’s about creating a list of your financial goals and figuring out how to get yourself there.

Here are some steps to take to get started on your financial plan.

1. Decide your goals

Figure out what your financial goals are in a year, five years, 10 years, and 20 years.

• Do you want to buy a house?
• Retire?
• Buy a car?

Make sure you know what you want as that will guide your financial planning.

2. Determine where your money goes

You need to understand your cash flow so you can figure out where your money has to go, where you like spending it—but can cut back if necessary—and how much you’re spending and saving.

Create a list of income and expenses and track both for a few months.  Put expenses into lists based on how necessary they are so you can see where you can save a little extra money.

3. Commit to saving

You don’t need to cut out all your expenses – you have to have some fun in life—but figure out a way to at least get a couple of months’ basic living expenses into a savings account.

See if you can cut back on meals out or change some of your utility plans to less expensive packages.  Don’t get into a situation where you need money for an emergency only to find out you don’t have any.

4. Commit to paying off debt

Yes, you can save and pay off debt at the same time.

You might have to cut back on your entertainment expenses or clothing budget for a while, but getting yourself out of high-interest debt will help your finances greatly in the long run, not to mention your credit score.

Over the course of years you could pay more than double what you initially owed on some credit cards and loans if you don’t pay them off.

5. Be aware of your credit score

Your credit score impacts your finances greatly, including affecting your interest rate and your ability to be approved for loans.  Check on your score at least once a year and, if there is an issue with your score, reach out to the credit agency to dispute it.

6. Talk to a financial planner

A financial planner can help you set your goals, figure out how much you can – or should – save, and the pros and cons to paying down debt versus saving or investing.

Furthermore, a financial planner can determine if your goals are realistic and achievable or if they should be revised somewhat and can ask questions to help you clarify your goals and your plan.

Final thoughts

You can go through life without a financial plan, but chances are you won’t be as financially healthy as you would if you had a systematic way of creating goals, achieving those goals and then reviewing to see how successful you’ve been.

Having a financial plan is certainly a better strategy than just crossing your fingers that one day you’ll feel financially secure.

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