With natural disasters like hurricanes, earthquakes and tornados in the news so often, and the economy still struggling to stabilize, consumers are rightly concerned these days about the fate of their financial futures should serious trouble strike.
The experts at Consumer Reports Money Adviser recently provided the following checklist to help you fill any holes in your financial safety net.
Your home
Homeowners know that Mother Nature can destroy their dwellings in a heartbeat, but many fail to realize they can put their homes at risk by taking on too much housing debt.
- Buy the right amount of homeowners insurance. You need replacement-cost coverage enough to rebuild your home at current costs. For a quick estimate, multiply the total square feet by local building costs per square foot. You can get that number from real estate agents, builders' associations, or insurance agents. You might have trouble getting this type of coverage if you own an older home with architectural details that would be costly to replicate.
- Borrow prudently. You can probably find a mortgage lender who will let you spend 28 percent or even more of your pretax pay on housing, but don't do it. Mortgage payments shouldn't consume more than 15 to 20 percent of your gross income. According to Consumer Reports Money Adviser, you should plan to have your mortgage paid off by the time you retire.
- You might need: flood insurance. The standard homeowners policy doesn't include it, but mortgage lenders generally require homeowners who live in areas at high risk for flooding to have a separate policy. This coverage is available through the National Flood Insurance Program, www.floodsmart.gov.
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