How You Can Afford Life Insurance by Reviewing Your Budget

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It’s interesting because I meet many people, many families – mothers, fathers, husbands, wives, grandfathers, and grandmothers – who are looking to purchase an adequate life insurance policy that is affordable.

They seek out a quote because it is their first policy or they are want additional coverage because they don’t have enough in place. Most of the time they purchase a policy and secure the protection and have that peace of mind that comes with knowing your family is covered in case of your death.

But what I want to talk about today is the other half of that scenario.

I Can’t Afford Life Insurance – It’s Too Expensive

There are quite a few times when I run the quote from several companies and I get one of the following: “That much?”, “oh, that’s expensive”, “that’s too much”, or “I can’t afford that.”

Another common one is “I know I $456 amount of coverage but let’s just do a policy for $123 amount because it is cheaper.”

The Amount You Need vs. The Amount You Choose to Buy

Here’s a recent example. I met with a man in his late 30’s. He was married with four children and the sole breadwinner making about $85,000 per year. We looked at his debts, his income, his children’s ages. We factored in college education and all of those things. We figured he would need about $1,500,000 in life insurance coverage – A 20 term policy so if something happened to him his family could continue their current lifestyle and be set for the future. He was in pretty good health, but he was a smoker, which means premiums are higher. His premium was $3,930 per year or $342 per month. (If he didn’t smoke his premium would only be It would have been $859 per year or $75 a month. Yes it is a huge difference!).

Now this is a man who makes $85,000 per year. He lives in a nice home. Has 2 cars. His family lives very well. They travel, they dine out, but it was very surprising because when I told him the premium he pushed back on it and wanted to look at the cost of $1,000,000 of coverage instead.

So I did the quote and it was about $100 per month cheaper. He still cringed and asked me to look at $500,000 and that put him at about $116 per month. I guess this was the sweet spot for him and put in the price range he was comfortable with, even though it was not the amount that he needed.

So I asked him “well I’m telling you what you need to adequately protect your family if something were to happen to you. Don’t you think it’s more important to find the extra money to get adequate.?” I mean a $500,000 policy wouldn’t even cover 6 years of his income and was barely enough to pay off his current mortgage, let alone have money down the line for his children’s education. He declined.

Why Do We Make the Choices We Do – A Burger Over Financial Protection?

This type of scenario happens every now and then and it perplexes me.

But at least this gentlemen got some type of coverage. There have been times when I meet with people who need a life insurance policy and when we discuss the premium, they say they can’t afford it and they never end up getting any coverage.

I do my best to try to explain the importance of life insurance but for some, whatever that premium is, there are things they spend their money on that they deem are more important.

What kind of things am I talking about? Well, that’s what I want to get into – budgeting. Finding money to pay for the things that are important like life insurance.

Where Do You Spend Your Hard Earned Money?

Where do you spend your money every day? Every month? Every year? A lot of people don’t know.

A couple of months ago I was in this position – making a good amount of money but still seeming like I wasn’t saving as much as I thought I could have. I started researching budgeting systems and apps and came across an awesome budgeting program called YNAB (it stands for You Need A Budget).

One of the main tenants of the YNAB program is that you budget your money to zero and you only budget what you have. I started using YNAB it and it completely changed the way I handle my money.

What I Discovered from Looking at My Own Finances

I evaluated my family’s spending habits and what I discovered from my own evaluation is that most of us have more money than we think we do. We bring in more money than we realize. The problem is that the money trickles out in little leaks on things that are not really enhancing our lives, while important things like life insurance, savings, retirement savings, and college savings waits on the back burner.

I’m using myself as an example because I know all families have different financial situations – different income, expenses, obligations, etc.

But I see this often when my clients will give me the privilege of looking over their budget and I find hundreds of dollars that are literally being flushed down the toilet.

When I started using YNAB I looked back at the previous month of our household expenses so I could get a feel for how much we were spending and where. I knew the basics – the fixed expenses like mortgage, utilities, life insurance, etc. – but what about all the little things?

I downloaded all the transactions from our bank account and categorized each transaction under the appropriate category (utilities, groceries, dining out, entertainment, car fuel and maintenance, life insurance, savings, and even a category called “waste” from bank fees, library fines, etc.).

I got a tremendous shock! I saw with my own two eyes the figure $560 under the eating out category. There’s no way we spent that much money eating out. This was my initial reaction – denial.

But there it was for all to see. The little meals here and there added up to over $560. That is a lot of wasted money that can go to so many other things besides a meal that goes in one end and out the other and then I have nothing else to show for it.

So fast forward one month. Guess how much I spent the next month eating out? $12.70. Yes there was a complete turnaround. Now this might not be realistic every month, but I can tell you that I get way more joy and satisfaction out of seeing that extra $500  in my savings account than in the eating out category.

What is the Latte Factor and How It Prevents You from Putting Money Where it Really Matters

I read a book called “The Automatic Millionaire” by David Bach and he talks about something called “the latte factor”.

The latte factor are the little things that we spend money on everyday that add up to big bucks over time.

Obviously a latte that you get at Starbucks or your local coffee shop is an example. A lot of people will buy a cup of coffee every single day and easily waste $100 per month or more. If you made your own coffee at home you’d have $1200 per year. Just think about how that adds up over 2 years, 5 years, 10 years.

When people say “I don’t have money for this” or “I don’t have money to buy life insurance coverage” or “life insurance isn’t affordable”, I try to explain to them that when you look at your latte factor, you can often find the money.

Your latte factor could be anything. It could be eating out like my example. It could be buying bottled water every day, smoking cigarettes, or even magazine subscriptions that come every month that you don’t even really read. Some people buy lots of clothes and other items that you get on impulse but you don’t need. Something else I found in my budget were books. I love to read and I buy a lot of books but I realized that I could check the same books out at my local library and save about $40 a month.

Are Your Spending Habits Keeping You From Protecting Your Loved Ones With Life Insurance?

So if you need life insurance but you don’t think you can afford it, I encourage you to look into YNAB (I highly recommend this because it forces you to look ahead and budget the money you have versus looking back at what you spent) or some other budgeting system to take a close look at your finances.

Find where you are wasting money and you’ll find a way to afford some life insurance. Cut out the waste and put that money towards something that is going to give you much more peace of mind. I found that I don’t miss the things I gave up. The satisfaction that you get from having adequate life insurance and the peace of mind that you have from knowing that your family is protected financially is much more substantial than the momentary pleasure you get from buying something or the full belly you temporarily have from eating a meal out.

I hope this post is helpful to get you in the habit of budgeting, because that is all it is. Most of us are in the habit of just spending money and not really paying attention to where it is really going. You can truly change your life around and get total control of your finances by making it a habit to budget your money.

I’m a big fan of life insurance because I’ve seen many families who have been on the receiving end of life insurance proceeds. A father, mother, husband, wife passed away unexpectedly and as challenging and as emotional as that time is, it makes a big difference to know that your needs are taken care.

Life insurance is the last paycheck that you give to your family.

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