When looking into purchasing Life Insurance, it is important to have an idea of what premium amount would comfortably fit into your budget. This will help you decide between Term Insurance and Whole Life Insurance and will also help you make sure the premiums will not stress your finances. One of the best ways to figure out what money you could safely spend on Life Insurance is to work out a personal Cash Flow Statement.
A Cash Flow Statement is a financial accounting tool used to track and balance income and expenses on a monthly basis. This is a tool that is not difficult to use and is incredibly helpful when making financial decisions. See the example below.
In order to complete a statement, you will need last month’s pay stubs and bank and credit card statements. This information will be needed to complete the three main sections of the statement – Income, Fixed Expenses, and Variable Expenses.
- Under the Income section, you will list your monthly salary, bonuses or commissions, child support payments, rental income, and Social Security or Welfare payments. Basically any money, even monetary gifts for holidays, would be listed in this section.
- Fixed Expenses would be listed next. These expenses include any bills that remain the same from month to month. Your rent/mortgage, daycare expenses, and insurance premiums are great examples of this type of expense. This section of the Cash Flow Statement will not typically change if the spreadsheet is completed on a monthly basis.
- Variable Expenses are ones that fluctuate from month to month. The amount of money spent on groceries, electricity, entertainment, and clothing will almost always shift each month. This part of the statement may require a little bit of time to complete, this is time well spent in order to construct and protect financial health.
To help save you some time and make the process easier, click HERE to download a free, basic Cash Flow Statement worksheet from the PRCUA. Each section can be altered to include the income and expenses that are applicable to you.
Once you’ve completed the Cash Flow Statement, look at the left over funds available and decide how much of that amount could comfortably go towards a Life Insurance premium. It should still leave cash left over to be saved and invested. With that number in mind, call us today at (800) 773-8632 and ask for a quote that works with your budget.