Your home is probably your biggest investment. To manage it, create a financial plan that takes into account repairs, upgrades, mortgages, insurance and taxes.
Do you pay each home-related expense as it comes? If so, you’re missing opportunities for upgrades, or much worse, heading into a financial crisis when a slew of surprise maintenance items hit. So take a holistic look at what it costs to operate your house and set up a home financial plan.
Use a home financial plan budget worksheet, and start by writing a list of expenses, such as:
• Home insurance, including liability
• Repairs and maintenance, such as new furnace, roof, painting
• Voluntary upgrades, such as a swimming pool, a premium range, a new powder room
What will you learn from this home financial plan weekend exercise?
How much you have to spend.
How much you need to allot in the short- and long-term for necessary maintenance and voluntary improvements.
With this newfound grip on your home’s expenses, you can create a home financial plan that’ll help you there for years with maximum enjoyment and minimum anxiety.
Here’s how to manage one aspect of your home finances — insurance.
Your vegetable garden is pointless without a fence to keep out rabbits; likewise, your home financial plan will come to nothing without an insurance “fence:”
• Homeowner’s insurance.Basic coverage for your home and everything in it. The average cost is $636 per year but this varies widely by state.
• Liability coverage. Protects you from a lawsuit if someone gets hurt on your property, for example. Your best bet: An umbrella policy. For about $300 a year you can by a typical $1 million policy.
• Various disaster insurance policies. Optional policies cover flood, earthquake and hurricane damage. As part of your home financial plan, you have to research to see what disaster coverage, if any, you need in your area, and what your standard policy already covers. For $540 a year you can buy flood insurance, for example.
Don’t under- or overbuy insurance
For your basic policy, get homeowners insurance with full replacement coverage in case your house burns to the ground.
That sounds simple, but heads up on calculation. Remember that you own a house as well as the land on which it sits. So even though you bought your home for $300,000, it may cost only $100,000 to rebuild it. Your policy limits should reflect this. This difference will vary widely by region.
Other ways to cut your insurance budget:
• If you make structural improvements, such as adding storm shutters, your insurer may give you a break.
• If you belong to certain groups, such as AARP or veterans’ organizations, your premiums may be lower.
Information from houselogic.com, provided by Bonnie Christensen, broker, ReMax Opportunities, 1810 S.W. White Birch Circle, Suite 104, Ankeny, 971-9973.