海角大神

Financial security isn鈥檛 a number or a threshold. It has to do with what you spend, and save, relative to your income.

Nothing proves that quite like research on millionaires by聽wealth management firm UBS. Sixty percent of those with more than $5 million defined themselves as wealthy, compared with 28% of those worth $1 million to $5 million. Yet what millionaires mean by 鈥渨ealthy鈥� is not necessarily financial independence: Only 10% defined wealthy as not having to work. It鈥檚 not even a number; only 16% said surpassing a certain asset threshold automatically made you rich.

The majority 鈥� two-thirds of those polled 鈥� said the whole point of building wealth was achieving financial security, where a single setback isn鈥檛 likely to plunge them into the ranks of the not-rich.

Half of those worth $1 million to $5 million believed that one bad break, such as a market crash or a job loss, would have a major impact on their lifestyle. Only 34% of those with more than $5 million felt the same.

You don鈥檛 have a million-dollar lifestyle to protect, and neither do I. But financial security for the middle class is achieved in exactly the same way.

8 steps to financial security

As soon as you spend less than you earn, then save the surplus, you鈥檝e made a start. You鈥檙e inching away from the financial edge and insulating yourself from shocks that could send you down the economic ladder.

Over time, you keep building that cushion while insuring yourself against catastrophic expenses that could wipe out what you鈥檝e saved. Eventually, you can achieve financial independence, where your income in retirement is sufficient to cover your expenses and some extras.

Here鈥檚 how you do it:

Start with a small emergency fund.聽You don鈥檛 need much to begin 鈥斅�$500 is enough聽to cover many unwelcome expenses, such as a medical deductible or a small car repair. If an expense drains your fund, build it up again so it鈥檚 ready for the next setback. You can鈥檛 build security without a way to deal with the unexpected.

Pay off toxic debt.聽Credit card debt is expensive. Payday and auto title loans are much worse. If you can鈥檛 see how to pay off your high-rate debt within five years, consult a credit counselor and a bankruptcy attorney about your聽debt options.

Limit your overhead.聽Keep your must-have expenses 鈥� shelter, utilities, food, transportation, insurance, minimum loan payments 鈥� to聽50% or less聽of your after-tax income. A smaller 鈥渘ut鈥� also makes it easier to pay your bills should you lose your job or be unable to work.

Invest in your future, year in and year out.聽Take full advantage of any company match you鈥檙e offered in a workplace retirement plan 鈥� and do so even if you鈥檙e paying off toxic debt, because matches are free money. No workplace plan? Fund an IRA. Use聽a retirement calculator聽to ballpark how much you should be contributing. If you can鈥檛 contribute enough right now, start where you can and increase the amount over time.

Insure against catastrophe.聽Health insurance聽can prevent bankrupting medical bills.聽Disability insurance聽can replace your income if you can鈥檛 work.聽Life insurance聽protects your dependents. Liability insurance can cover lawsuits that might otherwise wipe you out. As you accumulate wealth, make sure you increase the liability limits on your聽home聽and聽auto insurance聽to at least equal your net worth.

Build your emergency fund.聽Once you鈥檝e paid off bad debt and gotten on track with retirement, focus on boosting your emergency fund. Your first goal can be three months鈥� worth of those must-have expenses.

Retire your mortgage.聽Having a聽paid-for home聽by the time you retire won鈥檛 just help you sleep better at night. It also means you don鈥檛 have to withdraw as much from your retirement funds, since you鈥檙e not making mortgage payments. A lower withdrawal rate can make your savings last longer. You also can turn your equity into income if necessary through a reverse mortgage or by downsizing.

Create guaranteed streams of income.聽In retirement, your basic expenses should be covered by income you can count on. If聽Social Security聽isn鈥檛 enough to cover your basics, consider buying an聽immediate annuity, where you give an insurance company a chunk of money in return for a lifetime stream of monthly checks.

Financial security is all about peace of mind. You can begin to build it on almost any income, and you can start today.

Liz Weston is a certified financial planner and columnist at NerdWallet, a personal finance website, and author of 鈥淵our Credit Score.鈥� Email:聽lweston@nerdwallet.com. Twitter:聽@lizweston.

This article was written by NerdWallet and was originally published by The Associated Press.