If you're new here, you may want to subscribe to my RSS feed. If you have any questions, please see my policies page or if you would like to contact me, you can do so here. You can find out more about me here. I sincerely thank you for visiting!

Let’s face it. There are very few people that are truly wealthy. While it is a worthwhile goal (and dream) it’s one that is not likely to be realized. The goal for most people, especially in retirement is to aim for financial security rather than true wealth. CNN Money has four tips for reaching financial security, even if wealth is not achieved.

Build a cushion

This is the most important thing that everyone should do. You must have a savings account in case of emergency. As Americans, we have gotten away from having a rainy-day fund. The US savings rate has been negative for two years, meaning we are spending more than we are earning. While some of that is cashing out of home equity, how many people truly have the 3-6 months salary saved away somewhere accessible? That means not in a 401(k) or IRA, but in a savings account.

How are you going to get there? Budget, budget, budget. Pay yourself first. When you budget, have a line item for “savings”, or if you can’t fill that line every month simply lower your income at the top for what you put into savings. The article also suggests using gifts and direct deposit from your paycheck as ways to build up an emergency fund.

More esoteric suggestions include using flexible spending account money or the two extra checks you receive if you are paid every two weeks to boost savings. Both of those suggestions are much harder to implement. We do use our flexible spending account money because we pay about $500/month for daycare, not an insignificant sum. I do get paid every two weeks and we budget monthly, but the extra two checks are our vacation fund and Christmas fund respectively.

One great suggestion is to use a higher paying money market savings account to build a cushion quicker. This is one suggestion I have been unable to convince my wife to do. There are several online banks that are FDIC insured and offer rates as high as 4.75% on money market funds.

Live on less than you make

The easiest rule to building an emergency fund, but the hardest to follow. How do you do this? Budget, budget, budget! Schedule out all of your planned expenses for the month and compare it to your income for the month (which is generally fixed). If you go over on expenses because of a large unexpected expense one month make up for it the next month or the next few months depending on the size of the expense. As I said above, pay yourself first by having a line item in your budget to put into savings.

The goal is always to put 10% of your take home pay into savings. We have a hard time with this because of our child and other expenses. I do manage to put 10% of my gross income into my 401(k) to save for retirement, but we’re only at about 3-4% of take-home pay into savings each month. But, it is better than nothing!

Adopt a pay-go, pay-off strategy

Basically, this means pay off your credit cards every month. This is something we do religiously. It makes zero sense to pay the outrageous (usurious?) rates that credit cards charge to carry a balance. If you currently have a balance, this should be your first challenge, even diverting money from an emergency fund to pay off credit card debt. This is a huge debate in the financial blogging community right now, but I am firmly on the side of paying off credit cards then saving.

We do use credit cards for every purchase we make, but we use our Chase Rewards or Costco/American Express cards to do it. We get rewards for using these cards rather than simply using our checking account. The rewards added up to over $500 last year. If you can control spending, and write down every single purchase on your budget, I cannot stress highly enough to use reward cards for everyday spending. But you have to pay it off every month, otherwise the rewards are useless and you are better using your debit card.

Take cover

Insurance is a must for being financially secure. Health, disability, and life insurance are all good to have to blunt the effects of a catastrophe. However, they won’t keep your financial life from being ruined by a catastrophe all by themselves. Half of all bankruptcies in 2004 were at least partially due to health costs. 68% of those that filed partially or primarily because of health costs had health insurance. Review your policy to see what exactly is covered. Get disability insurance if you do not have it. My extended family has been lucky that health catastrophes that resulted in permanent disability didn’t end up in bankruptcy because of fantastic health and disability insurance. Replace as much of your income as you can for long-term disability insurance. Inflation will eat at whatever amount you are able to replace (prices double every 20 years) and you will want to keep the same lifestyle as long as possible.

Life insurance is necessary if anyone relies upon your salary to survive. If you have children, make sure to get enough to take care of them until they will no longer rely upon you for their primary means of support. If your spouse relies upon your salary for primary support, get enough to pay off any debt that the two of you have accumulated along the way: mortgage, student, cars, etc. Consider getting term rather than whole life as it is often cheaper (especially if you are young) and you can therefore afford to get more insurance. You can never have too much life insurance.