What is the difference between being rich and having financial security? For me, being rich means that you do not have to worry about money. You have acquired enough money that whether you continue to work or not, you are able to pay all of your bills, take regular vacations, and spend money without necessarily monitoring your bank accounts. Being financially secure on the other hand means that you are gainfully employed, you have a savings account that could cover all of your bills for at least 3 months, your credit is good, and you still have disposable income to use for entertainment.  It also means that you have enough money saved to cover emergencies and your financial goals.” Financial Security is something that is more obtainable for most people than becoming rich because it is based on your income and future financial goals. Therefore, regardless of where you start, you can achieve financial security.

 
As I discussed previously, growing up in poverty handicapped my future financial security but over the years I’ve learned ways to improve it. One of the most important strategies that I use to maintain my financial security is having a “real” savings account. A “real” savings account is an account that you use to save money for emergencies only. This account is not used to save for vacations, Christmas gifts, expensive bags or anything else that is socially necessary but you could live without. As a rule of thumb, my short-term goal for my savings account is to have enough money to cover all of my critical bills (mortgage, gas and electric, car note, water etc…) for at least 6 months. By living by this rule there are very few reasons for me to withdraw money from this account other than if I lose my job or to purchase of house, both of which happened last year.

 
Last year my job became so stressful that it I knew that I could no longer sustain the torment any longer. I needed a change. The idea of leaving a job that I had for over a decade was very scary to entertain but I knew that staying was not necessarily ideal for my health, so I began to seek out new opportunities. I am a strong believer in not quitting your job until you have another one. And as fate would have it, another job came along. The only problem was that the new job could only pay me ~$15 per hour which was a serious demotion for me. While I knew that I would not be able to live off of that hourly wage forever, I had a “real” savings account that could supplement my income until I could find a salary that was more suitable for my lifestyle. That savings account afforded me the financial security that I needed to make the transition from one job to another without fear of losing my assets, borrowing from friends or family, or without having to pass on too many outings with friends. Nor did I have to put undue stress on my husband because I continued to contribute to the household as I did when I was making more than double that wage. Furthermore, because I took that transitional job, I did not have to spend as much of my savings that I budgeted for this type of emergency. When I finally secured a better paying job and had to move, I was able to use my savings for the down payment on my new house.

 
So how do you create a “real” savings account?

 
Living within your means: Before you determine how much you can afford to save every month, it is important for you to know how much disposable income you have. Calculate your bills, add the casual bills such as gas money, coffee, lunch etc…, and subtract it from your net monthly income. The money that you have left over is your disposable income. Based on that figure, develop a realistic goal for what you can save (without withdrawing) every time you get paid. For example if you have $600 a month left over after bills, start by saving $100 per paycheck. That leaves you enough money for emergencies such as getting a flat tire and money to make extra payments on your credit cards or whatever else that you left out of your initial budget. By saving $100 per paycheck you could save $2400 a year without having to give up on things that you enjoy. That may not seem like a lot but over the years it will start to look better.

 
Choosing the right account: Self-control is a major barrier that prevents you from not withdrawing money from that account, therefore to help you control yourself you need to set up your “real” savings account appropriately. Here are three rules for setting up your account:

1. Choose a bank that you do not have access to on a regular basis. This should not be a bank that you pass every day. This will require you to put in extra effort to withdraw from your account.

2. Have your money auto drafted from your paycheck or bank account. When the money is auto drafted from your account it does not require any effort on your part to remember to add money to the account and eventually you will get used to living without that amount.

3. Do not get a debit card for that account. Again you want to make it difficult to withdraw your money.

Define emergency: For me, an emergency is losing my job. Define what an emergency is to you and stick to it. Do not withdraw this money unless you absolutely do not have any other options. Remember, this is not your vacation money, this is your security blanket.
Set a goal for the amount of money you need to save to feel secure: My short term goal is to save enough money that I could live off of for at least 6 months. This is a reasonable amount of time that I believe it will take me to get another job. Decide how much money will make you feel comfortable. Remember, financial security is about your peace of mind.

 
Contribute a portion of your tax return or raise to your account: If you get a bonus, such as a tax return, or a raise, contribute a portion of that to your account. This is a long term investment into your future and it should grow as you do.

The tips that I provided are based on my own personal experiences and are not the only things that you can do to set up a “real” savings account but I hope that they help you get started. It is important to reiterate that financial security is a personal feeling so you should feel free to tweak these tips to make them more feasible for you and recognize that having a “real” savings account is just one aspect of establishing your financial security.

I’m interested in your feedback about these tips so leave a comment and/or email me to let me know what you think.