Investing: Follow these steps to security

Financial security isn't 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 wealth management firm UBS. Sixty percent of those with more than $5 million defined themselves as wealthy, compared with 28 percent of those worth $1 million to $5 million. Yet what millionaires mean by "wealthy" is not necessarily financial independence: Only 10 percent defined wealthy as not having to work.

The majority — two-thirds of those polled — said the whole point of building wealth was achieving financial security, where a single setback isn't 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 percent of those with more than $5 million felt the same.

You don't 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.

As soon as you spend less than you earn, then save the surplus, you've made a start. You're 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've saved. Eventually, you can achieve financial independence, where your income in retirement is sufficient to cover your expenses and some extras.

Here's how you do it:

• Start with a small emergency fund. You don't need much to begin — $500 is enough 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's ready for the next setback. You can't build security without a way to deal with the unexpected.

• Pay off toxic debt. Credit card debt is expensive. Payday and auto title loans are much worse. If you can't see how to pay off your high-rate debt within five years, consult a credit counselor and a bankruptcy attorney about your debt options.

• Limit your overhead. Keep your must-have expenses — shelter, utilities, food, transportation, insurance, minimum loan payments — to 50 percent or less of your after-tax income. A smaller "nut" 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. Take full advantage of any company match you're offered in a workplace retirement plan — and do so even if you're paying off toxic debt, because matches are free money.

No workplace plan? Fund an IRA. Use a retirement calculator to ballpark how much you should be contributing. If you can't contribute enough right now, start where you can and increase the amount over time.

• Insure against catastrophe. Health insurance can prevent bankrupting medical bills. Disability insurance can replace your income if you can't work. Life insurance 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 home and auto insurance to at least equal your net worth.

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

• Retire your mortgage. Having a paid-for home by the time you retire won't just help you sleep better at night. It also means you don't have to withdraw as much from your retirement funds, since you're 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. In retirement, your basic expenses should be covered by income you can count on. If Social Security isn't enough to cover your basics, consider buying an 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.