If you have a good credit score, you might be able to get a bank loan for almost all of your long term and short term goals. Yet, the biggest financial goal of any individual must be achieving complete personal financial independence. However, it is an unfortunate fact that more than 23% of Americans are under debt which they consider unmanageable. Also, half of the population has less than one month of saving for emergencies while 20% of them don’t have any saving at all.

Above mentioned situations sound threatening for anyone seeking financial stability and independence. The key to achieving that stability lies in proper planning and management of your personal finances.

Personal finance planning is a lot easier than it may sound to a complete newbie. By following simple steps, not only you can control your cash flow but also save a reasonable amount every month. Let’s take a look at step by step personal finance plan.

Assessment of current Situation

To plan ahead, you first need to understand where you are currently standing. This can be easily done by making balance sheet and cash flow statement. The balance sheet helps in calculating your current assets and liabilities while cash flow or financial statement will determine your income and expenses.

Determine your Goals

Goals can be long term and short term. You might plan for a short family vacation this summer or higher education. Determining your goals help in evaluating how much amount you need to save within a certain period of time.

Budgeting

Budgeting is the heart and soul of personal financial management and planning. The basic purpose of budgeting is to keep your expenses lower than your income, plus allowing you to save money to achieve your goals and targets. Budgeting may also involve cutting down unnecessary expenses.

Build Your Defense

Insurance works as your defense against certain risks. In order to avoid unforeseen expenses due to unavoidable circumstances, you must acquire adequate insurance. For instance, if you own a house, you must have Homeowners insurance. Other Insurances such as health and long term disability insurances also protect you against financial crises.

Investing

You can save some amount out of every payment you get, but most of the time that is not enough to achieve all your goals. Most long term goals such as retirement planning require a way to generate profit on that money. Investing is the most efficient way to utilize your money in such a way. There are plenty of investment options including stocks, bonds, real estate, etc.

This is a guest post from Albert Harris, personal finance tip contributor at CreditDonkey.com.  Read more finance tips and start planning for your future at CreditDonkey.com