A Better Way to Manage Your Everyday Money - Book - Page 273
will do to your net cashflow. Do not add the premiums to the monthly bills in your
debt-to-income ratio. Insurance costs do not affect your DTI.
If the premiums result in an unacceptable change to your cashflow, what you do next is up to you
given your financial situation. You could look at making the premiums affordable by:
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renegotiating the insurance policy coverage;
increasing your income maybe by doing a side hustle;
eliminating bills that have a lower priority for you than the insurance;
if you have multiple debts, getting a consolidation loan to reduce your debt payments;
discontinuing or reducing your use of credit cards to increase your net cashflow;
reducing or pausing set-asides to sinking funds and/or savings to free up cashflow.
If you are okay with the changes to your net cashflow that are a result of the new premiums, you
can proceed confidently with the purchase of the insurance policy. After you have purchased the
coverage, add the new bill to your cashflow spreadsheet.
Should you self-insure?
Sometimes buying insurance doesn’t make sense. An
example is vision care. Coverage for eye exams,
frames, and lenses is normally not included in a health
insurance policy. When included, the premiums
typically cost more than can be recovered with claims
which means, instead of reducing the cost of seeing an
optometrist, the coverage actually increases what you
pay for vision care.
Adding an ongoing savings to your spreadsheet for
vision care could provide you with self-covered
insurance. You add the savings by:
1. Estimating the total amount paid annually for eye exams, frames and lenses.
2. Calculating a monthly amount for vision care by dividing the estimated annual amount
from step 1 by 12.
3. Adding a fixed amount savings in PerNetFlow with:
a. a total monthly set aside amount equal to the average calculated in Step 2, and
b. a set aside limit equal to the estimated annual amount from Step 1.
4. Adding an unscheduled bill for payments to the optometrist.
5. Linking the unscheduled optometrist bill to the vision care savings.
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