Step 1: Spend less than you earn

Perhaps the simplest financial concept is the toughest for us to conquer- spend less than you earn. After paying your living expenses (bills, loan and mortgage payments, cost of food, charitable contributions, taxes, etc), you can begin to save and invest toward your future. If you are spending more than you earn, you must find a way to change this. You may even need to change your lifestyle- drive a more efficient car, eat out less, live in a smaller home, cancel your cell phone, etc. Make a commitment to your financial success to spend less than you earn. This may take a lot of discipline, but is an essential first step towards your financial wellbeing. Once you spend less than you earn, you will be on your way to reaching all of your goals.

Step 2: Prepare for an emergency

Before doing any actual investing, you need to establish an Emergency Fund (cash held in an account for emergencies). This fund can be used for various emergencies, but, its main purpose is to pay your living expenses in the event of a sudden loss of income. That is, if you lose your job, you will still be able to pay your bills without having to abruptly withdraw money from your investment accounts. A relatively conservative amount to keep in your Emergency Fund is that equal to 6 months of living expenses.

Step 3: Determine your goals

Would you take a road trip without an ultimate destination? How long will the trip take? What should you pack? In what direction would you drive? These questions are easily answered once you know where you are going. The same is true for investing. Before any investments are actually purchased, you must know your ultimate destination- you must create a list of your goals.

Determining your goals and writing them down will serve as the foundation for a proper investment plan, allowing you to customize your investments to each specific goal. Some examples of