7 Steps You Must Take to Protect Your Family Financially

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We're all looking for ways to make our money grow, to build the family fortune, and secure our financial future.

But creating that empire is only half the equation; preparing for the unexpected is what will ensure its longevity. After all, life is full of surprises — an accident for example, or an extended period of unemployment — can throw a wrench into your otherwise perfect path to financial security. (See also: 5 Emergency Situations You Must Prepare For)

The key, then, is to anticipate those surprises so that you can protect your family and your assets. The question is… how?

1. Simplify Your Lifestyle

A couple of years ago, we had a power outage that lasted for almost two full days. It was cold, so we cranked up the propane heaters to stay warm. We ate takeout (my oven is electric), and we moved around the house at night using candles and flashlights. (See also: Things to Have in Case of a Power Outage)

No Internet. No TV. And once the battery operated handhelds went out, that was it. For me, it was a minor inconvenience that would eventually be over. For my kids, it was Armageddon.

And that's when I realized just how dependent they had become on all the little extras we were used to having, a dependency that must immediately be corrected.

We've forgotten how to appreciate the simple things in life. How to play board games or tell ghost stories for example, or how to pass the time without being plugged in. We've become accustomed to a lifestyle that requires very little effort, yet requires a lot of "stuff," and not just the electronic kind. Clothes, shoes, cars, boats, toys, books — you name it, we'll buy it in bulk.

But the "better" you're living now — that is, the more stuff you're used to buying — the harder it would be to adjust if catastrophe struck and that happy little bubble suddenly fell apart.

To lessen that shock, you can start making changes now. They don't have to be big. Simply introduce small, gradual changes into your lifestyle that cuts some of what you don't need, so that you can make room for more of the things you do. (See also: Lessons in Simple Living From Extreme Minimalists)

Clear out the clutter, prioritize your to-dos, and learn to live simply and below your means. Discover the pleasures of having free time again and the freedom that comes from not being chained to the world of materialism.

2. Start, and Grow, Your Emergency Fund

There is a reason that staying on a budget continues to be a popular New Year's resolution. Theoretically speaking, budgets keep us on track. They help manage our money by controlling our spending and allocating funds to save.

There's also a reason why budgets are so difficult to maintain: too many variables. Once you get past the regular fixed expenditures like your mortgage, insurance premiums, and car payments, you're in a very gray area. Groceries, gas, entertainment, and the like can all fluctuate, and one big unexpected expense can throw your budget completely out of whack.

That's exactly why you need an emergency fund.

In the past, experts suggested having six months of salary stashed away as sufficient, but depending on your circumstances, that might no longer be enough. Families with small children for example, might need to stash away a bit more; likewise if you're the primary breadwinner and concerned about the possibility of extended unemployment, it might make sense to look past that six month mark. (See also: Emergency Fund Guide)

One solution in these instances would be to increase your emergency fund to a flat dollar amount, say $10,000 to $15,000, for example, to meet your projected financial needs. Alternatively, you could create a separate "long-term" fund and stash away twelve to eighteen months of salary for those big, catastrophic scenarios.

The problem is, how does one build an emergency fund when you have no extra money to work with?

First and foremost, start small. Yes, you want to reach that twelve to eighteen month milestone, but don't set that as your original goal. Instead, start with something much smaller, and then devise a plan to get there. The goal will seem much more attainable, and you'll experience a sense of security knowing you have a few hundred dollars stashed away should you need it. (See also: How to Achieve All Your Goals)

Now, let's talk about how to make it grow. Create a budget that's workable and realistic… and then stick to it. Can you save $5 to $10 out of each paycheck? Could you possibly save more?

If you get a bonus on your paycheck or a little extra for working overtime, deposit it into your savings. Did you follow my earlier advice and start cleaning out your clutter? Have a garage sale and use the money you make to grow your emergency fund.

Get serious about simplifying your life and you may discover other ways to save you hadn't seen before. Maybe you're able to cut some expenses that you no longer need. Gym memberships, magazine subscriptions, eating out once a week instead of two or three. All these small changes add up to big savings, and if you'll deposit those little surpluses when you get them, you'll find that your emergency fund grows bigger and faster than you could have imagined.

3. Pay Off Your Debt

And since we're talking about budgets and lifestyles, let's also talk about debt. Nothing depletes a nest egg faster than a mountain of debt, so it's time to buckle down and pay it off. Of course, that's often easier said than done, which means you'll need a plan that works with your shiny new budget. (See also: The Ultimate Trick to Paying Off Debt)

In general, you should pay down balances with the highest interest rate first, but for some, knocking out those smaller balances creates a sense of accomplishment and thus, motivation to keep going (the "snowball effect"). How you choose to prioritize your debt repayment plan is ultimately up to you, but consider using a debt repayment calculator to make that decision an informed one.

As you pay one bill off, apply that money to the next in line, or better yet, split that extra cash between your debt and your emergency fund — that way you're tackling two goals at once.

4. Buy Insurance

You need insurance. Auto insurance, homeowner's insurance, life insurance, and yes, disability insurance. According to the Social Security Administration, one in four 20-year-olds will suffer a disability before they retire. The average disability claim lasts just over 31 months, but one in eight workers will suffer a disability that lasts more than five years.

Now, what would happen to your finances and your family if you were suddenly disabled for five years?

Yet, not buying insurance continues to be one of our biggest financial mistakes. And when we do buy, we tend to go for the cheapest policy without looking at what it covers.

So do some research. Do you know the difference between term and whole life? Do you understand how an all-risk policy compares to a named peril form? Insurance companies are notorious for putting the important stuff in the fine print — I should know, I worked in that industry for years — so read your policy. Read all of it and make sure you understand what you're buying.

Insurance is a must-have that should be in the "can't do without" category of your budget. But it's only as good as the policy it's written on, so buy wisely.

5. Invest in Yourself

I've written before about our tendency to get stuck in our comfort zone, and one of the unfortunate consequences of this mindset is that it limits our ability to earn and succeed.

The best investment you can make for your long-term financial security is in yourself. Expand your skills, broaden your horizons, improve your education. The more things you know and can do, the more valuable you are as an employee, and the more marketable you are in the workforce.

Making professional growth a priority ensures that you're never left behind. It enables you to apply your skills and talents to a variety of industries and compete for a variety of jobs. It also enables you to venture out on your own and explore new possibilities for wealth, possibilities that allow you to determine your own value in the workforce and set financial goals that don't require someone else's approval to make them happen. (See also: Build on Your Strengths to Find Success)

6. Leave Your Legacy

I handle the family taxes every year. I know how to do it, because my mother taught me. My husband is a brilliant negotiator and can work a deal where there simply wasn't a deal to be had. He learned how to do that by watching his father do it.

We've faced financial highs and lows. We've lost everything and then bounced back more times than I care to count. And we did it — we knew we could do it — because our parents showed us the way.

When we talk about leaving a legacy, we often think about the big trust fund or the family business that is passed down through the generations. But that's not all a legacy is. It's also about teaching your family members to stand on their own two feet. (See also: How to Raise Financially Independent Kids)

Show your children how to balance a check book, how to invest wisely and not fall for the get-rich-quick schemes, how to make ends meet, how to prioritize expenses, how to work with a budget, and set up emergency funds of their own. Help them see past the things that don't really matter, so that they can focus on the things that do.

Give them the tools they need to discover their own potential, and your family's financial security will always be protected.

7. Begin Estate Planning

And last (but certainly not least), it's time to think about the unthinkable. What if something happened to you? What happens to your family's finances if you're not around to manage them?

Estate planning addresses those questions by walking you through all the possibilities and formulating a plan of action for each one. (See also: Tech Tools for Planning Your Death)

Yes, wills are a good place to start, but this is about more than just deciding who gets what. A good estate plan encompasses a variety of instruments to not only divide your property but also protect your assets, provide for your family, and eliminate any uncertainty about their future security.

You can create a nest egg for future generations, provide for disabled dependents, and stipulate control over financial and medical decisions if you become incapacitated. A good estate plan can also minimize taxes on your estate, create performance incentives for your offspring, and protect that legacy you've worked so hard to build.

Granted, you'll need more than just a DIY form off the Internet; a good estate planning attorney is a must if you want to really maximize the benefits of having a plan. But it is by far the most thoughtful gift you can give your family, and well worth the expense.

Now it's your turn… what tips do you have for ensuring your family's financial future?