1. BUDGET
2. SAVE
3. INVEST

BUDGET Is Not a Four Letter Word:
Really, it" s="" six.="" Many="" people="" have="" a="" negative="" perception="" of="" a="" budget,="" but="" a="" good="" budget="" can="" actually="" liberate="" you.="" Without="" one,="" we="" humans,="" especially="" those="" with="" a="" propensity="" for="" the="" material,="" have="" a="" tendency="" to="" spend="" more="" money="" than="" we="" should.="" Without="" a="" budget,="" many="" of="" us,="" including="" governments="" and="" businesses,="" get="" in="" over="" our="" heads="" with="" debt.
With the best credit card annual percentage rate (aka APR) at 10 percent, most people with debt will not achieve financial goals beyond earning pre-sale access to Cher's latest farewell tour. While her show will no doubt be the experience of a lifetime, Cher's tickets will take many a lifetime to pay off when bought on credit.

Too many of us spend more money than we make. We do this by living on credit cards and other loans, always owing someone something, just like J. Wellington Wimpy. Of course, you're not going to eat a hamburger before you go to Cher's show, but like Wimpy you may see her today and then pay for it tomorrow... and the next day... you may still be paying it off when her next farewell tour comes around. That delay in payment will cost you a lot of money.

A budget lets you know what you can do and when, without interest payments. A budget does not say you can't see Cher. It simply tells you how to plan ahead, so seeing her will not cost you 20 percent more than it should. Which leaves that 20 percent available for your Cher costume or, better yet, a retirement plan.

There Are Two Basic Steps to Create a Budget:

Step One: Calculate your personal monthly profit. First, compute your monthly net income, which is your income minus taxes and other deductions such as healthcare, life insurance, etc. Then, from this number, subtract your monthly expenses, both recurring and fluctuating. Recurring expenses include auto loan payments and Internet service that cost the same each month. Fluctuating expenses include heat, water and groceries, costs that vary each month.

Step Two: Review your personal expenses. If your monthly expenses exceed your monthly income, leaving you without a monthly profit, you must cut your monthly expenses. By this we mean non-essential expenses, such as dining out, cable and magazine subscriptions. If your monthly expenses grossly exceed your monthly income, you may need to consider selling your car or even potentially downsizing your home.

How much of your monthly income should you spend? The simple answer is that you should spend less money than you make. This requires planning ahead and having patience.

You can certainly go to Cher's show, but in order to go without carrying a credit card balance for the next few years, you will need to save first. A great app to download to your smart phone or tablet is mint.com, the personal finance app. This free app categorizes your spending and has tools to help you track and stay on target to reach your personal finance goals. More information can be found at mint.com.

SAVE for Security:
The foundation of a solid financial plan is an emergency savings account. Many people don't like the word "emergency" because it suggests something ominous. We'll call it a"security"account instead.

Standard advice is to save between three to six months' worth of living expenses in a separate, not easily accessible, savings account. The easiest way to calculate your range is to multiply your total monthly expenses from above by three and six.

If you have credit card debt, we suggest that you first save $500 to $1,000 for your security account and then pay off your credit cards before you fully fund your security account. Rates for savings accounts are considerably lower than the APR you likely pay to carry credit card debt from month to month. If you pay off your credit card debt first, you save money in the long run because you reduce your future expenses by eliminating interest charges.

The reason a security account is important is that, just like Cher, you cannot turn back time and erase past mistakes, financial or otherwise. A security account reduces the risk you will acquire new or additional debt should anything nefarious happen to you.

Get Ahead with INVESTMENTS:
Investments make your money work harder for you, rather than you working harder for your money. Investments are imperative for a successful financial plan. Robert Kiyosaki, the author of "Rich Dad/Poor Dad," defines true wealth as having your investment income exceed your living expenses. All too often, our living expenses exceed our investment and earned income.

Consider this example' target='_blank'> Say you bought a new Audi RS5 in 2011 for about $70,000. The millisecond you drove that new car off the dealer lot, it depreciated in value about 10 percent, or about $7,000. After you owned that not-so-new car for three years, it depreciated in value over 40 percent, or almost $28,000.What would have happened if you invested your $70,000 rather than purchase that new car? The average annual return of the S&P 500 over the last three years was about 16 percent. If you invested your $70,000 in an S&P ETF (Exchange Trade Fund) in 2011 and never touched it, your investment would have appreciated about $39,000 and would total over $108,000 today.

We are often asked the question, "How much money should I invest?" The best answer is to "Invest as much money as you can." There are many formulas to calculate how much you should invest. One suggests you save 10 percent of your monthly income. Another suggests you invest the percentage of your monthly income based on your decade of life. Save 20 percent in your twenties. Save 30 percent in your thirties, and so forth.

There is the 50/30/20 rule that suggests you spend 50 percent of your monthly income on essentials, such as housing and food, 30 percent on non-essentials, such as your phone bill and social life, and then invest the remaining 20 percent. We suggest that you spend less than you earn and invest more than you think you can.

In summary, a quality financial plan includes three key steps. Start your financial plan or amend an existing plan today.

1. Create a budget to bring your current expenses below your income.

2. Create a security account to protect yourself.

3. Develop a plan to invest.

NOW GET STARTED!

David Auten and John R. Schneider, III are The Debt Free Guys. For more information to help you get out of and stay out of debt, visit their blog at debtfreeguys.com. For high school and college students who need help saving and managing money for college, download their Ebook #MoneyConscious Student.