The second step in personal financial planning, and the topic of this article, is choosing and following a course toward long-term financial goals. As with anything else in life, without financial goals and specific plans for meeting them, we drift along and leave our future to chance. A wise man once said: "most people don't plan to fail; they just fail to plan." The end result is the same: failure to reach financial independence.

FOUR SIMPLE STEPS FOR SETTING FINANCIAL GOALS

Step 1: Identify and write down your financial goals, whether they are saving to send your kids to college, buying a new car, saving for a down payment on a house, going on vacation, paying off credit card debt, or planning for retirement.

Step 2: Break each financial goal down into several short-term (less than 1 year), medium-term (1 to 3 years) and long-term (5 years or more) goals.

Step 3: Educate yourself! Read Money magazine, or a book about investing, or surf the Internet's investing web sites.

The stock market is not voodoo. With a little effort you can learn enough to make educated decisions that will increase your net worth many times over. Then identify small, measurable steps you can take to achieve these goals, and put this action plan to work.

Step 4: Evaluate your progress. Review your progress monthly, quarterly, or at any other interval you feel comfortable with, but at least semi-annually, to determine if your program is working. If you're not making satisfactory progress on a particular goal, re-evaluate your approach and make changes as necessary.

DO IT NOW!

There are no hard and fast rules for implementing a financial plan. The important thing is to do SOMETHING, and to start NOW.

Building a Financial Safety Net

Building a financial safety net to prevent financial disasters caused by catastrophic illness or other personal tragedies.

Long-Term Disability Insurance

Long-term disability insurance helps replace your income if you are unable to work due to illness or injury. Many people consider this coverage a luxury, when in fact, it should be considered a necessity for those who don't have other financial resources they could tap in the event of an illness or injury.

Even if you do have other financial resources, would you want to use them to pay your monthly bills? If you saved 5% of your income each year, a 6 month disability would eat up 10 years of savings!

Don't think it could happen to you? Although your chances of having a disability increase as you get older, illness and injury can happen at any age. Car accidents, sports injuries, back injuries, pregnancy, and disease are just a few examples.

Ask yourself this question: could you live without your income for three months? Six months? A year? If the answer is no, you need disability insurance. Employers often offer this coverage via a payroll deduction, which may be tax-deductible.

Life Insurance

Life insurance is necessary if you have dependents who will suffer financially if you die (children, for example). If you have no financial dependents, it's probably not necessary, although many people also use insurance as part of their estate planning and cash accumulation regardless of their dependent status.

If you plan to buy insurance other than term insurance provided by your employer, you should educate yourself about the pros and cons of term, whole life, and other types of insurance. You may also want to talk to an adviser about how much insurance is enough. The Investment FAQ Web site explains how to determine your life insurance needs.

Emergency Fund

Financial advisors suggest having enough savings in an easily accessible account to cover your living expenses for six months in the event of illness, job loss, or other serious emergency.

Summary

Once you've protected your income-generating ability with disability insurance, protected your dependents with life insurance, and protected your other assets by having a six month emergency fund, your financial safety net is in place and you're ready to turn to the task of accumulating wealth.

One should consult with a qualified financial professional prior to implementing any financial strategies.