Step 4. Eliminate Bad Debts:

Bad debt is money that is borrowed to buy items (usually wants and not needs) which loses value over time and which will not provide a commensurate 

financial return to pay for the interest on the debt.

Good debt is money that is borrowed to buy items which increases in value and/or which provides financial return to pay for the interests on the debt.

Examples of Good Debt VS Bad Debt:

Good Debt :
Money is borrowed at 10% annual interest to pay off a previous debt for which you are paying 20% annual interest.
Bad Debt :
Money is borrowed at 20% annual interest to pay off a previous debt which is charging you 10% annual interest.

Good Debt :
Money is borrowed at 30% annual interest to buy an apartment that will give you a rental income that is equal to 50% annual interest.
Good Debt :
Money is borrowed at 20% annual interest to pay for education/seminars that will increase your human capital value in the corporate world.

Bad Debt : Money is borrowed to buy the "latest" gadgets just to be ahead of the crowd.

From the examples provided above, the essential difference between a Good Debt and a Bad Debt is whether the money borrowed is used to accomplish the following:

I.   Generate additional income for You.
II.  Reduce your expenses.
III. Increase your value as a professional or human capital.

If the borrowed money does not accomplish any of the 3 items above, then most likely the debt incurred is bad debt.

So pay off bad debts and stay off bad debts.

Ten Most Common Money Mistakes:

Mistake #1.     Living beyond your means 
Mistake #2.     Not saving enough
Mistake #3.     Being materialistic
Mistake #4.     Giving in to Greed
Mistake #5.     Not knowing what you want
Mistake #6.     Failing to pay off debts
Mistake #7.     Being killed by advertisements
Mistake #8.     Not having a plan
Mistake #9.     Not having financial education
Mistake #10.   Procrastinating

Source: 

10-most-common-money-mistakes

Step 3. Reduce Expenses and Increase Cash Flow:


-> Increase cash flow by reducing expenses on unnecessary wants.
Know your Wants from your Needs. (Understand that having income generating Savings/Investments should be considered among your "Needs" because these instruments will support you during the time when you will have no more active income.)

-> Pay Yourself First / Budget to Save.

Create a budget which will require you to allocate a portion (Ex. 10%~20%) of your monthly income to Savings/Investments before spending your income on your monthly necessities.

Expenses = Income - Savings (Correct), 
Savings = Income - Expenses (Incorrect).

-> Stick to the Budget.

-> Payoff Bad Debt (and Stay Off Bad Debt).
Pay off bad debt which requires you to pay interests to the lender. Eliminate these unnecessary expenses by paying off the debt as soon as possible.
Stay off bad debt by avoiding borrowing money to buy unnecessary items/wants which will burden you with additional expenses to maintain or support the items/wants.

-> Do not live beyond your means.  

-> Buy Assets instead of Liabilities.
Increase cash flow by "spending" on items that will add to your income. (Buy income generating assets instead of income depleting liabilities.)
Having passive income generating assets will allow you to have an alternative source of income that is not dependent on your effort and will later provide for your needs when you cannot work anymore.

-> Start NOW!

Filipinos have low Financial IQ - 2008 Study

"Based on the Fin-Q results, only one out of 10 Filipino respondents is consciously saving up for this retirement. The rest have some savings but don't know if it will be enough. Others have no idea at all how much they need or have not started planning," said Agustin Davalos, Citibank Philippines' retail bank director.
"If they lost their jobs tomorrow, or suddenly fall ill and cannot work, their savings would last only for nine weeks (about two months) before they run out of money," Davalos said.

 Article: Filipinos have low financial IQ, says bank - Philippine Daily Inquirer