A Realistic Look At Financial Security

The following post is from Kevin of 20smoney.com and SimpleFinancialFreedom.com

There are a few ideas and terms that the masses throw around in an effort to mitigate risk and be more financially secure. The terms that come to mind are emergency fund and diversification. While these are valid concepts, I don’t think they complete the picture of financial security that we should all strive towards.

Most people would agree that economically, we’re in better shape now than a year ago. While we can debate to what degree, I think it would be wise for us to assume that we’re not better off. We should assume that we’re still in the middle of a recession (we probably are), and that things could still get worse. Furthermore, we should assume that it is very likely that we lose our job or lose our income in the near future. If not a complete income loss, we could easily see an income reduction as business revenues and sales continue to struggle.

I’m not here to convince you that these things are going to happen, but rather to convince you to prepare for the event in which they do. If things turn for the better, the economy improves, and your income increases, then great! If not, hopefully you’ll be prepared. So, what to do?

Redefining the Emergency Fund

Most people understand the purpose of an emergency fund: to save up a chunk of money that can pay for our expenses in the event of income loss or a major unexpected expense. By establishing an emergency fund, you can pay your bills and buy groceries with this fund versus tapping a credit card. This is a smart strategy, but I believe there should be more to it.

Storing supplies and consumable goods should also be a part of your emergency “fund”. Your emergency fund is used to pay for stuff when you can’t afford it. If you prepare accordingly, you can use your funds to pay the bills, but hit up your supply stash for products like toiletries, food, canned drinks, etc. The combination of emergency funds and emergency supplies means you can last longer on your own in the event of a loss of income. Furthermore, using your stored supplies for things like food will prevent you from going out to dinner when you should be saving your money during this phase. Lastly, your storage supplies can double as emergency supplies in the event of a disaster or supply shortage. By adding supplies to your emergency fund, you are increasing both your financial security and your independence; a winning proposition in my opinion.

Diversification of Income

We love to spout the fancy term diversification over and over when we’re referring to our investments, yet most of us go through life being completely non-diversified with regards to our most important financial asset: our income. The simple fact is that too many people rely entirely on a single income and are unprepared for the possibility of an income decrease or elimination. In addition to preparing a robust emergency fund as described above, a second prudent step (especially over the long-term) is to diversify our income.

While employed and making money, it’s important to spend some of your free time working on the development of a second income stream. While everybody would agree that such an idea is a wise strategy, probably less than 5% of people actually act on it. I guess television is too enticing.

To start the process, take an inventory of the skills or tools that you possess. Maybe you have excellent graphic design skills, or you can do a range of household repairs, or maybe you have quality lawn equipment. Next, analyze your contacts that might help you get going on this income/business venture. Who might be potential customers? Who might help you find additional customers?

Growing an alternative income stream takes hard work, and will be much slower than you think since you’re spending your limited free time working on it, but I believe it is a worthwhile process. Be organized, determined and patient. Over time, you will see results.

The great thing about working on a second income stream is that it has the potential to eventually turn into a thriving business. It is a less risky form of becoming an entrepreneur. Even if it doesn’t grow into a huge business, the additional income will help boost your savings and help you survive if you lose your main income.


Financial security is a topic that we should all take more time to thoroughly discuss. I have severe doubts about the years ahead with regards to the U.S. economy; as such, I’m doing what I can to prepare for whatever situations I’m forced to encounter. If I’m wrong on my economic views, I’ll still be in great shape with a few extra dollars in the bank and maybe some stocked closets full of goods to use. Such a conclusion would hardly be a bad one. I strongly believe we should prepare for the worst and hope for the best. When it comes to your finances, this old cliché is definitely applicable.

What are some of the ways you’re improving your financial security?


  1. Great post! I would add that in addition to your stockpile, a good idea would be to stockpile knowledge and skills– for example — learn how to cook from scratch, learn how to garden and preserve produce, things like that. I feel pretty secure knowing I have seeds to plant in the spring (that I gathered from my garden last year, I didn’t buy them) and a group of chickens in the backyard for eggs and meat. That’s my stockpile, and it replenishes itself.

  2. I’m glad that emergency supplies are becoming a more popular thing to do. Until recently a lot of people just thought the idea of storing things like rice and toilet paper was reserved for people preparing for the end of the world…

    I don’t have emergency rations because I won’t likely be living in my current place for long but as soon as I am settled it will be a priority.

    As for an alternate income stream… I work for myself online right now so it’s not an easy option, however I do try as hard as possible to diversify my income streams so I can ramp one stream up if one fails on me.

    Thanks for the great post.

  3. I’ve been working on adding revenue streams for awhile now, all online. I have a couple of small websites that supplement my income and as my blog grows income should follow suit. Eventually I’d like the freedom to quit the day job and concentrate on my own business.

  4. Hi! I have been a fan of your blog for awhile now. I have a couple questions for you:

    How much of an emergency fund should my husband and I have? Right now, we have about 6 months.

    I started a stock pile of non-perishable items last year ( laundry detergent, shampoo/conditioner, hairspray, deodorant, razors, toilet paper, kleenex, trash bags, dish soap, etc) Right now, I have about 8 months worth of stuff.

    I was just laid off in December from a telecommunications company ( my job went to India), right now… unemployment is making ends meet. I do not want to break into the stock pile just yet but on occasions, I have to. How much of a stock pile should I have?

  5. It was here on Frugal Dad that I first heard the idea of a “side hustle”. He says everyone should have a side hustle, and that got the wheels turning in my head. I’ve been spending the last 12-18 months pondering and exploring potential side hustles that would supplement our income. My main motivation now is to pay off our home. Thanks to the Dave Ramsey Baby step plan, we are debt free but the house, saving for retirement, saving for our daughters college, paying a double principal payment each month on our mortgage…but I know that with some hustle and good planning, we can generate more income and pay off the house faster.

  6. @Sid — I agree, but I am not keeping livestock/gardening because I think the sky is going to fall — I do it because I don’t like having to rely on mass marketing to provide for my family. I like it that I can go to the backyard and pick my own crops and raise my own meat. I know where it came from, I know what it ate, what’s been sprayed on it, and I don’t have to rely on a source to get it other than myself. And I am learning how to do it, while I have a grocery store backup in case I make mistakes — that way I will always have the knowledge no matter what.

  7. As Hyperinflation Approaches, the Flight Into Real Goods will Accelerate.

    Inflation is the real problem that is going to drive the economy into a deep recession and we havent even begun to face the economic challenges in front of us. The President and Congress are busy blaming others, delaying issues, spending what little wealth we have left and lying about it to the public.

    We are in big trouble.

  8. Another important consideration for becoming self-sufficiency is transportation and energy. If the economy crashes, one of the hottest items is going to be fuel for vehicles, and we’ve already seen how high gasoline and diesel prices can rise in a short time if the world gets too edge. The best bet would be to live close enough to wherever you need to go where you can walk or ride a bike. The next best would be to have a very fuel efficient vehicle to avoid spending $100 per fill up, or worse, not finding enough gas to fill up at all (remember the gas lines in the 70’s?) if rationing goes into effect. Getting into a carpool also helps, even now when prices are lower than the last few years. I’m not going to say buy a tank and ferment your own ethanol, but finding a way to use as little fuel for transportation would be a good bet in case of disaster and will reduce your costs regardless of good or bad economy.
    Energy will be another key issue. I’m a big fan of having a wood burning or pellet fireplace/stove. And you can stockpile wood/pellets in advance just like food, buying when the prices are low to ensure you get the best deal. It’s not as convenient as central heat/air, but it works well in the event of energy price spikes, very cold weather like we’ve had this winter. Also, if you know anyone who has land, you can help them clear up their property by removing branches and dead trees, all the while collecting ‘free’ energy for you home. Unfortunately, this doesn’t work as well for big cities, but in the Mid-West where I live you can save a bundle.

  9. Lisa, don’t forget a shotgun and shells; otherwise, your less prepared neighbors may be helping themselves if all he*l breaks lose.

  10. I was a little tongue-in-cheek on that last response to Lisa, but it was in response to Curt’s “the sky is falling” post. Ok, it sucks that the Prez and Congress are spending money as fast as drunken frat boys consume beer, but none of our preparations will be sufficient if as the gloom and doomers predict, everything goes south. There will be rioting on a mass scale, and all the canned veggies in the world will be useless if 20 of your neighbors show up…

  11. I agree with Forest’s comment – nice to see others thinking in terms of broader emergency planning, not just emergency funds – and that this isn’t something we should just associate with so-called “survivalists”. Diversifying one’s income stream is a really important idea – too bad that isn’t taught so much as part of the whole “go to school, get A job” ideology.

  12. I think the idea of diversificaion should also be extended to the industries couples choose to work in. Both family members working in the private sector is just TOO RISKY today. If possible, one spouse should be in education, healthcare or goverment work. While this scenerio is not perfect, it greatly reduces the probability of both members being unemployed similtaneously.

  13. That is a great article. We have just started our stockpile but even now it allowed us to cut our grocery spending from 45 to 25 when we had a bad week.

  14. My husband and I both work but try to live on the smallest salary…that way we’re covered if one of us loses our job.

    So far, we’re living on about 50% of our income, but that’s a little higher than the lowest salary. We’re making it a priority for 2010 to lower our discretionary spending. Luckily we both have really stable jobs (teaching and a specialized office position that makes the company profit even now), so we do this mainly because we said we would 5 years ago during our last semester at college…

    He is also a high school sports official. I babysit and petsit occasionally. I also am in charge of Ebaying and Craigslisting furniture we replace and collections we built in our younger years.

    Financial security is one example of happiness that money can buy. 🙂