1. Examine your life insurance options.
Why take out life insurance? The main reason to do it is if you have dependents (e.g., your spouse or children) and you don't have enough assets to provide for them after you're gone. It can protect your loved ones from having to take on the burden of repaying your debts, helping them stay secure in their own finances. Do online research to determine the best life insurance plan for you. Life insurance gets more expensive as you get older, so start early. The idea is to have life insurance when you're young - when you typically have less money and fewer assets - and then acquire assets as you age, reducing the need for life insurance and, therefore, avoiding pricy premiums.
2. Consolidate your account information.
Over the course of your lifetime, it's likely that you'll have acquired stacks and stacks (or online folders and online folders, if you manage your stuff digitally) of important documents. When you're planning for a potential tragedy, that's the time to get these documents organized. These include things like property titles, life and other insurance policies, investment accounts, retirement plans, debts owed or due, mortgage information, and anything else that has to do with your finances.
If you're married and your partner depends on your income or finances, make sure that your spouse knows the usernames, passwords, account numbers, and any other essential information for your important accounts. Additionally, make sure that both of your names are on your accounts - if they're not, your spouse is not legally allowed to access the accounts, and gaining access will take time and effort and could even require court action.
3. Plan your estate.
The most important thing to do when financially preparing for death is to plan your estate: Write a will, a power of attorney, and a living will.
A basic will outlines where you want your money and assets to go after you die (e.g., the money in X savings account should be divided among the five children).
A power of attorney puts someone else in charge of your finances if you're still living but are unable to make financial decisions. For example, if you have a stroke or another terrible unexpected medical complication and you're unable to manage your finances, the power of attorney allows someone you trust, such as your spouse or child, to manage your money while you're still alive. That person will be able to do things like pay your rent or mortgage. Once you die, this person will no longer have power over your finances - at that point, the will comes into play.
A living will, also known as an advance health care directive, is a set of instructions that outlines the actions that need to be taken for you if you're no longer able to make decisions for yourself because of illness or incapacity. Although a living will may not help with your finances, it's essential because it is one less thing your loved ones will have to think about when having to deal with a tragedy.
Another estate-planning document to consider is a revocable living trust (RLT), which is an arrangement that allows you to completely transfer ownership of your property and assets into a trust throughout your lifetime. Here's how it works: The grantor (you, the creator of the trust) grants a trustee (the person to whom you're transferring property ownership) the ability to manage all trust assets (your property) and distributes it to the beneficiaries (the people in your life who are going to receive your belongings after you die). RLTs are generally for people who have a large amount of assets that need to be managed.
Consult with an attorney to ensure you're taking all necessary estate-planning measures.
4. Grow your emergency fund.
An emergency fund is a savings fund you build up but hope you never have to use. It can protect you in the unfortunate event of a tragedy, such as an unexpected job loss, a sudden death in the family, a natural disaster, or unforeseen medical expenses. Aim to have at least six months' worth of living expenses saved, but if that's not possible, putting even just a small amount of money away each month will help you stay financially secure. You'll have peace of mind knowing you're prepared for the worst.
-By Sarah Kaufman