Life Insurance is an essential piece to the financial puzzle. Yet, many people struggle to budget for a life insurance policy. It often tends to be at the bottom of many American’s financial priority list.

If money is tight but you know you need life insurance, here are the best ways to budget for life insurance.

Quick Article Guide:

1. Review Your Income
2. Track Your Spending
3. Set Goals
4. Make a Plan
5. Adjust Your Habits
6. Review Your Budget Regularly
7. Find the Best Life Insurance Policy for Your Needs

Review your income

Before you begin to budget for life insurance, you need to know exactly how much money you have coming in on a regular basis. It’s simple to overestimate the amount of life insurance you will be able to afford if you use your gross income instead of your net income.

In order to accurately determine your gross income, you will want to exclude taxes, Social Security, or any retirement contributions such as automatic 401(k) contributions.

If you’re self-employed or have an irregular income stream, you may want to use an average of your previous weekly income from prior years. Try to be as realistic as possible when estimating your monthly income. The more accurate your estimate, the less likely you will be to overextend your budget.

You will also want to include any side hustle or supplemental income you receive on a regular basis. Even if you only make an extra $100 a month from your side job, you may be able to capitalize on this source of income to increase your cash flow.

Track your spending

Once you have a good idea of the amount of money you are generating on a monthly basis, you can begin tracking your expenses. It made be a good idea to work off a spreadsheet to help with your calculations. Make sure that you separate your expenses into fixed expenses and variable expenses.

Fixed expenses are standard recurring monthly payments. For example, your mortgage and car payment is a fixed expense. Variable expenses change from month to month. These expenses include entertainment and grocery shopping.

If you’re unsure of some of your expenses, review your bank and credit card statements. Your statements will highlight your spending habits and where your money goes each month. It may also be a good idea to write down everything you spend money on for a month or two. You will begin to notice patterns or areas that you can eliminate in order to include life insurance in your budget.

Set goals

Goal setting is a great way to budget for life insurance. Once you discover what’s coming in and going out, you can begin to set your goals. Not only should your goals include budgeting for life insurance premiums, but they should include other short-term and long-term goals. Long-term goals may be saving $500,000 for retirement, while a short-term goal may be saving $1,000 for your summer vacation.

You don’t have to write your goals in stone. Taking the time to establish your goals will help you determine your financial priorities and what you hope to achieve in the upcoming months and years. Understanding what’s most important to you will make cutting your spending easier if you know what you’re working toward.

For example, if you know life insurance will give you and your family peace of mind, it may be easier to eliminate your cable bill.

Make a plan

Use your expenses to determine how much you’re spending monthly. You may have to estimate your variable expenses to calculate an approximate amount. Once you calculate how much you’re spending on a monthly basis, you can determine how much you have left over to contribute toward your goals.

A good rule of thumb is the 50/30/20 budget. With this rule you will aim to spend 50% of your income on fixed expenses, 30% on variable expenses, and 20% on savings. Following this guideline will provide you an outline for reaching your goals.

Adjust your habits

If you find you’re in the red after the end of every month, you may need to cut back your spending. There are numerous ways to increase your income while lowering your monthly expenses. For example, you may be able to call your cable company and negotiate a lower price for their services.

You may find that you need to change some of you spending habits. Maybe you enjoy shopping online or visiting Starbucks once a day. Each of these spending habits can significantly add up overtime. You may want to limit your online shopping to once a month or one visit to Starbucks a week.

Making these adjustments along the way will help you better manage your money and budget for life insurance.

Review your budget regularly

At the end of every week, month, and year, you will want to review your budget. Your expenses and priorities may change throughout the year. It’s a good idea to be flexible and willing to adjust your budget when necessary.

Reviewing you budget will also help you see your progress and what you have accomplished over an extended time period.

Shop for best life insurance policy for your needs

Once you have determined exactly how much life insurance you can afford, it’s time to begin shopping for a policy.

When you begin to compare policies, you may find you need life insurance coverage that is out of your price range. Your life insurance needs may be more expensive than you initially anticipated.

Don’t worry, you have several options if you determine your premium is more than you can afford:

1. You can review your budget again and find other areas you can cut spending or eliminate expenses.
2. Start with a smaller term life insurance policy you can afford. You may be able to increase your coverage overtime. You may also be able to convert your term life insurance policy into a permanent policy. Before you purchase coverage make sure it has a convertible option, in case you need more coverage.
3. Partner with a life insurance expert to help you find the most suitable coverage. Insurance experts such as Term Life Advice can steer you in the right direction and help you find the most affordable policy.

Budgeting for life insurance is easier than you think. With a little research and organization, you will be able to afford the best life insurance coverage to suit your family’s needs.

At Term Life Advice, we work with 63 top-rated life insurance companies to help our client’s find the most affordable life insurance coverage. We also offer no exam life insurance if your schedule is too full to meet with a nurse, or if you need insurance in a hurry to collateralize a business loan.

If you are in need of a life insurance policy, please don’t hesitate to contact us today. We’re here to help! Give us a call today at 855-902-6494 for some accurate rates to help you get started, or you can request an online quote below to instantly compare your options.