If you are like most people, you don't know where to begin when planning for retirement. However, as the saying goes, if you fail to plan, you plan to fail. Do not suffer the consequences of being unprepared for retirement. There are too many retired men and women who don't have the money to pay for shelter, food or the rising costs of medical care.

By following these simple steps, you can develop a plan that can lead to financial freedom.

Step 1: Start an emergency fund

  • Most financial gurus suggest people should have between six months and a year's worth of income set aside for emergency purposes. However, this figure is unrealistic for the average person. Until you are debt free, the average family should only save between $1000 and $3000 for emergency purposes. It is critical this money is placed in a separate account and not with your primary funds, or you will spend it. It is also important to use this money for emergencies ONLY. It should never be spent on everyday living expenses, special occasions or holidays.

Step 2: Get out of debt

  • It is important to eliminate your debt before you start participating in most investment programs. (With the exception of your company's retirement program up to the company's match amount.) Dollar for dollar it usually makes more financial sense to pay off your creditors first. One of the reasons behind this is the high cost of credit verses the average rate of return on investment accounts. According to bankrate.com, the average credit card carries an interest rate exceeding 14.5 percent, which is higher than the average rate of return on many investments. Be smart—do your homework and know how much interest you are paying on your credit accounts verses the rate of return on a potential investment. If your credit accounts have a higher interest rate, always pay them off first.

Step 3: Live on a cash basis

  • Many people supplement their lifestyle by using credit. This is a huge and costly mistake. Buying something on credit could more than double the cost you pay for the item depending upon the interest rate you are being charged. If you do not have the financial means to pay cash for a non essential item, don't make the purchase.

Step 4: Get educated -

It's your responsibility to understand the risk and benefits associated with any form of investing. Strive to be an educated consumer. Read books, attend a class and do your research online. Morningstar is one example of the many helpful websites filled with financial news and information regarding different types of investment options. And don't be afraid to hire an expert. Find a financial planner that fits your needs and has a strong background with solid experience.The Financial Planning Association provides a search engine that allows you to look for a planner and investigate their history.

Step 5: invest in your future -

There are many investment options to choose from, depending upon your financial goals and current economic situation. The following steps provide a good foundation for anyone planning for retirement.

Participate in your company's 401k/403b up to the company match. Doing this will provide you an instant rate of return equal to the percent they are willing to contribute—it's free money.

Open a ROTH IRA accountand contribute the maximum amount of money based on the program's guidelines. Contributions to this account are made using after-tax dollars. However, the account grows tax free, saving you a substantial amount of money over time.

Monitor your investments on a consistent basis.This is crucial. Be committed to not only reading but understanding your statements. This will allow you to make appropriate adjustments to maximize your return.

Be in it for the long term. Saving for retirement is considered a long term investment plan (greater than 10 years). If you invest on a consistent basis, your money will continue to grow until you reach your goals.

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