Figure out the following:

How much money is coming in each month? (For example: salary and other sources of income)

How much is going out each month? (For example: housing, food, bills and other expenses)

How much spendable income is available each month?

What is your net worth (assets minus debts)?

First, organize your money
You've got to get organized. Developing a simple, working system for tracking your money as it comes in and goes out is essential to the plan. For now, it gives you a baseline to work from. Eventually, it will help you save money and headaches.

See the box titled, "Figure out the following"? Do it. It may take you a little time and receipt-saving, but do it. It doesn't matter whether you are content with a couple of manila folders or you want to go all out with the latest-model computer, color-coded files and a CPA on retainer. Just do it.

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Get your notebook out. Record the answers.

Failure to have the above numbers at your fingertips at all times could be detrimental to your future wealth.

Adjust your spending
Once you have a clear money picture, you can reallocate fewer dollars to consumption and more toward debt repayment. To do this you'll need to develop a reasonable budget. Find corners you're willing to cut in spending.

The key is to learn to live within your means. That's not necessarily easy in a world of nonstop commercials and costly opportunities for fun. Like any adjustment of old habits, it'll be tough at first. But if living your life on your own terms is a priority, you can make it happen.

Create an emergency fund

When the car breaks down or the roof starts leaking, you need to have cash to fix it. Figure out how much you need to cover a year's worth of emergencies (take a look at last year's expenses) and start accumulating your stash. The road to excessive debt is paved with credit card charges and cash advances to cover emergencies.

Create a freedom fund

Freedom is knowing you can live for six months without a job. Figure out what six months of bare-bones living expenses are and start accumulating. Then you will never again be stuck in a job. If the going gets rough, you can get the heck out of there and pursue your dreams.

Practice selective extravagance
To keep yourself from hating your financial plan, learn to practice selective extravagance. Keep in mind those short-term goals along with your mid- and long-term goals that you wrote down in Step 2.

Learn the difference between spending money to achieve goals and enjoy life -- and spending money just to spend money. If you enjoy theater, go to inexpensive local productions while you are saving up for that big vacation to London for a week of plays. If friends are a major priority, throw a dinner party every once in a while.

Check out more ways to trim the fat and stretch your cash at our Frugal U page.

Paving the way to financial freedom
Once your debts are under control, make plans to create two funds that will give you even more freedom and control over your financial life -- an emergency fund and a freedom fund.

Think of the emergency fund as your "that's life" fund: Stuff happens. The car breaks a gasket. Fido chokes on a Veinna sausage and needs an emergency trip to the vet. Your shoe lands on Boardwalk and you owe $500. The freedom fund is your "get out of jail free" card (not literally, we hope.) With six months' worth of bare-bones living expenses stashed away, you can have the peace of mind knowing that losing a job won't mean financial devastation.

Controlling your money means controlling your life. When you can live within your means and build up a comfortable cushion of savings, you're on your way financial freedom.

Proceed to Step 4 and learn how credit and debt figure into your plans.