 Personal finance practice problem using Excel. Simple life insurance calculation. Prepare to get financially fit by practicing personal finance. Here we are in our Excel worksheet. If you don't have access to it, that's okay because we'll basically build this from a blank sheet. But if you do have access, there's three tabs down below. Example, practice and blank. The example tab in essence dean and answer key. Let's take a look at it now. We're gonna go through the most simple kind of calculation here for the life insurance needs, information on the left, calculation on the right. The second tab has a pre-formatted worksheet on the right so you can use less time with the Excel formatting. Third tab has a blank area on the right, just the information on the left. If you don't have this at all, you could just add the information on the left. I would start by selecting the entire sheet, putting down my baseline formatting, lay down the base beat, and I'll be right clicking on the selected area to do that and then format the sales. I would go to the currency brackets, no dollar sign, no decimals. That would be my starting point. I'm not gonna hit okay but just close out because I've already got this set up. Then just put your data on the left, make a skinny C column and we're good to go. So this is gonna be the most basic kind of calculation like a back of the envelope or a quick type of calculation for the life insurance. Remember that as we talked about in prior presentations when we looked at financial calculators online, you can have a whole lot of different kind of variables in the life insurance calculation or how much a life insurance would be needed. I would look at some of these online tools for example and then think about what they're using for the calculation methods and use them as a guideline to see if your calculation looks like in the ballpark or appropriate. Notice that we got different answers for multiple tools in prior presentations when we try to put the same information in because it's not just a standard, there's a whole lot of different factors that you can take a look at. So we'll think about like the most baseline kind of factor that you might use as a rule of thumb and you're gonna go back on over and say, okay, well what if I'm the one that I'm gonna have life insurance for, I'm the earner of the family, I have people dependent upon me and I've got 73,000 basically of income. Now clearly if you're getting into a more complex calculation you would want us to be thinking about well how many assets do I have, how many liabilities basically do I have, what's gonna be the shortfall or difference between the two and what are gonna be my family needs now and into the future? Are there any other things they might need like education and whatnot and retirement savings that I would like to add in to be saving for in retirement? But you might also say well, I'm just gonna try to say that if I was living then I would be making the 73,000 so I would like to keep them in that same spot as if I was earning 73,000 and still being alive so that might be your first kind of back on the envelope type of calculation. You might just be saying well, how much life insurance would I need? Well let's say that I got the life insurance calculation and I'm gonna make this black and white for the headers so let's go up top and go to the home tab, font group and let's make this black and white as has been our custom for the header row and let's just say that my annual salary, annual earnings for me, the person that I'm getting life insurance for, the wage earner is 73,000. So then I might just try to use years years where I wanna basically have that 73,000 replicated. Now this is a calculation that you might think differently for different dear different needs. If you've got children, you might be saying well, how many years until that child reaches adulthood, possibly 18, they're out of the house or possibly 24 if they're still dependent because it kind of takes a little bit longer oftentimes for a lot of, or like 42 because they're gonna be dependent. This kid is gonna take a long time for that. So you might use that or you might try to think about how many years until your working life would end until your retirement because that's what it would be if you were alive you would think or you might try to think that how many years till your spouse is in retirement for example or you could use just basically a generic type of seven to 10 which is often somewhere in the range of the generic meaning that most people it would take like seven to 10 years to kind of compensate for basically someone who passes away to get realigned to the earnings structure. So we're just gonna use the generic rule let's just use 10. So I'm just gonna multiply it times 10 years. So font group underline. And so then I'm gonna say this is the subtotal, subtotal is gonna be equal to the 73,000 times 10. So then we have these 730,000 that we would need if that was gonna be our calculation. Now you also might say, well, yeah, but what if I'm dead then they're not gonna at least be needing me. I'm not gonna be eating. So you would think maybe they don't need my full 73,000 and if I'm covering both the necessities and over and above the necessities with the 73,000 you might say that maybe I should have some fraction of that in terms of what the actual necessities would be without me and the picture consuming some of them and some there's a standard ratios between anywhere between 60% and 80% that you might say here, you might say I'm gonna take a ratio of that and I'm just gonna be using 70% 0.7% home tab numbers and percentify that. I'm gonna go to the font group and underline that. And then I'm just gonna say, well, that would be my life insurance needs needed. Let's say I'm gonna make this a little bit larger. We're just gonna say this would be equal to the 730 times the 70% that we get up to the 511,511,000. Now again, that's a pretty kind of basic kind of calculation but you could do just a quick estimate based on that. You might, you could go either way in terms of, well, is 10 years enough? I don't know. You could also go either way in terms of, well, maybe I shouldn't be taking 70% of the ratio. Maybe I should actually be increasing it given the fact that my earnings would probably increase. Maybe I'm not at my peak earnings. My earnings would increase over time possibly with inflation at least that would be in play. And of course, we also might try to get more complex calculations on a needs basis, which would basically be what am I saving for in particular trying to figure out the actual expenses that would be needed for a year and how much the education expenses and then how long people are gonna be needing them based on the child's life. Expect until they're independent or until retirement or something like that. So we'll get into that in a little bit more detail in future presentations. Notice if I look at some of the online calculations where I used a similar kind of number here, like this one got to the 633,000. And so that one, you know, if I used just, if I used just the 710 years, we'd have 730. So it's kind of in between those two for this first calculation. And that one's pretty basic. The second one, they got to 820 because I put a lot more information into this one. This one, they got to the 1,000,000. And then, and these have some different calculations here. So you can kind of use these online tools as kind of as a guideline to see if you're somewhere in the bull park to what they are calculating. But that's just the first baseline type of calculation that you might consider. And again, a lot of people might just stop and say, well, I'm just going to say my salary times seven to 10 years, right? Or something like that might be your first thought. And also just realize that, of course, when you're talking to insurance companies, you know, they might have an incentive to over, to clearly, you know, increase the amount of insurance because they might be making commission on the sales of insurance. That doesn't mean their calculations are wrong or anything like that, but you might want to kind of take that into consideration as you're doing your calculations possibly talk to multiple insurance companies to possibly do and run your own numbers so you can have an understanding of what is actually going on. So we'll do more calculations on this in future presentations. Let's make this our custom formatting home tab font group. Let's put some borders around it. Let's make it blue bucket. If you don't have that blue right there, I'm going to hit the more colors standard. I'm going to make it blue right there and say, okay, okay. And then let's do a spell check review spell checkie. And so that looks good. So that's the baseline and we'll continue with more calculations in future presentations.