The level of debt you feel comfortable with.

In Brent Hunsberger's financial column on February 15 in the Oregonian, he discusses why we need to all step up and help people facing the foreclosure of their homes. He gives as an example, the Gott family who three years ago "bought a new, four-bedroom house in Albany for themselves and their two girls." At the time, their annual income was $64,000/year; both parents worked, the father in building supply and the mother as a special ed. assistant. They had no car payment and no credit card debt and felt their $1,900 payment on their $260,000 home was reasonable.

Hunsberger describes what happened when they lost 23% of their income. He then goes on to explain how concerned he is by comments left on his blog when he posted their plea for help. "Several readers skewered them for getting into a house above their means and not shutting of cable or a cell phone." The Gott husband argues that cutting those things off wouldn't make a difference and Hunsberger goes on:

"Sure, it's unfair when those who made a mistake get bailed out while the rest of us foot the future tax bill. But the carnage could affect everyone if we don't step up and deal. As employers shed jobs and cut pay, millions of other US homeowners will find themselves in a similar fix.

"A foreclosure doesn't just hurt them. The lender loses money. Surrounding property values drop. That makes selling homes more difficult, puts more homeowners underwater and leads to more foreclosures. The cycle feeds itself."

I agree with Hunsberger's closing argument, but let us return to the Gotts for a second. Was their home purchase reasonable. I've just Googled "How much home can I afford?" and found the following paragraph on the first hit.

Here's the super-quick rule of thumb: Most people can afford a home that costs up to three times their annual household income, if they can make a 20% down payment and have only a moderate amount of other debt. If you have little to no debt and can put 20% down you can probably buy a house worth up to four times your annual income. (http://michaelbluejay.com/house/howmuchhome.html)

The article doesn't mention how much down payment the couple was able to make, but let us run the numbers as if they did. $63,000 X 4 is $252,000.

So according to this quick look the Gotts, with no debt, have overbought a bit.

Then I plugged the numbers into the financial calculator at the bottom of the page. I entered their monthly income ($5333) and their debt payments ($0) and I gave them a down payment of $10,000, though it has been my experience that a lot of people in the last five years bought their first homes with little to no money down. According to the calculator, with a 6% interest rate, a 2% property tax/insurance rate (those were defaults I used) if the couple takes out a 30 year mortgage, the most house the couple could afford is one for $201,853 with a monthly payment of $1546. So according to this rough calculation, the Gotts have overbought a lot.

But here is my real point, (I'm quite good a burying the lead). When times were good, the Gott's house payment was 35% of their expenses. When their income decreased, the payment suddenly took up 48.5% of their income. The smart spending money blog states that you shouldn't spend more than a quarter to a third of your before-tax income on housing. In good times, the Gott's only exceeded that by a bit. But currently they are in completely over their heads. Should they have committed so much to housing their first time around? I think this is where their initial mistake was. If they had limited themselves to a house payment of 25% of their current income ($1333 per month) when that income dropped to its current level, their house payment would only take up 34% of their budget, less than their original percentage.

Though I think the Gotts made an unfortunate choice, I can understand why they did so. I started looking at houses in 2004. I was hoping to get my first teaching job and become a home owner shortly afterward. At the time in Portland, there were still houses available for $130,000. They were old and some of them needed a lot of work and all of them were tiny, but they were available and I was looking forward to the challenge. I didn't get my first teaching job and my financial situation was not good for a few years. When I began looking again in late 2006, it was difficult to find any home in Portland proper for less than $200,000. Home ownership seemed very, very far away. It was frustrating and depressing.

I, unlike a lot of people in the country in the early 2000s, did not believe that the good times would always roll. I've never felt that the income I earn from work will continue to be there, either at it's current level or in an ever increasing amount. It probably has to do with messages I got growing up, (though my family's income did grow in slow but steady amounts) and the many bad employment choices I made throughout my 20s.

I'm also very uncomfortable with debt. I currently have no credit card debt and I hate that I took out $30,000 in student loans for graduate school. When I was planning to buy my first home, there was no way I was going to commit 35% of my monthly income to mortgage, etc. It seemed too risky.

In 2007, with my income, a partner in graduate school and home prices at record highs in Portland, I faced the facts that there was no way I was going to be able to afford a home in the next 5-10 years. The story of how I bought my first home ends happily: I found the Portland Community Land Trust, we happened to income qualify, a house came available we could afford, family generously gave us money for more of a down payment and we bought it. We were incredibly lucky. My partner has subsequently graduated and now has a job. I just did a rough calculation and our house payment is 13% of our combined income.

Here's where I have a problem with the Gotts. In "stretching" to buy their first home, they bought more home than they could afford. They are no different than many, many people across the country. I can't tell you how many times I read the dubious advice to "stretch a little" to get into your first home. Who was giving that advice? People who gave loans. People who sold houses. People who stood to make money off of the "stretching". All that stretching drove up home prices and left people who weren't willing to stretch with the following options: keep saving and renting and hope for a downturn; give up and "stretch"; or find an alternative way to home ownership.

When I worked for Census 2000, one of the things we said a lot when kidding around and giving each other a hard time was "you are part of the problem." As in, "Why aren't the reports done? Because you didn't finish proofing them. You are part of the problem." I think of that phrase now and then, and lately a lot in context of the housing problem. Who is part of the problem? The lenders and real estate agents. The crappy oversight, sure. But people like the Gotts? They are part of the problem too.

17 ways to live happily...parting words.

Be happy with what you earn, but always look out for ways to earn more.

Remember Suze Ormand’s clients, who would be happy with only $500.00 more per month? All of these suggestions are meant to get you thinking about how you could live happily with what you have. That’s not to say that you shouldn’t leave yourself open to one day earning more. And when you do earn more, you can apply what you are learning now, so your money can stretch even further. Then you can live enthusiastically on what you have.

17 ways to live happily...second jobs.

If you do have a second job, make sure that you love it.

Sometimes people who feel squeezed trying to stretch the money they have choose to get a second job to bring some more money into their lives. I mostly suggest not doing this. A lot of times working a second job means you don’t have time to do the basic housekeeping tasks that keep costs down. If you work more hours you suddenly have even less time to plan your meals and cook them and clean your house and look for bargains and sit and space out. When time is crunched then the meal on the go looks much more attractive. When you are pressed for time things like shopping seem to be a good way to spend your day.

But sometimes you can work a little bit at something you love and that little bit makes all the difference. For the past six years I have been an advisor to the youth group at my church. I enjoy working with the other advisors and planning activities and hanging out with the youth so much that it took me several years to realize that I have a second job. The stipend that comes with the position is not huge, but it is a happy check to receive each month in the mail. Over the years I have saved that amount to help buy a house, to boost my savings, to make ends meet, to spend on alternative medical care, and to pay for classes. I’ve even set aside a portion of it as “mad money” to spend on what every I wanted. My second job doesn’t take up very much of my time, and results in cash every month.

17 ways to live happily...television

Don't watch TV.

TV can be free entertainment, but I think that avoiding it altogether is the smartest choice. Cable is never a necessary expense, though I realize many people enjoy spending their downtime watching TV. But the whole television experience is designed to get you to buy things. Discounting the commercials (which make no bones about getting you to spend your money on things you never knew you wanted) I find the majority of things on TV show a distorted view of reality. Remember the apartments of the “Friends?” How about the homes that supposedly middle class families live in on TV? Huge! And reality shows? Not actually reality.

If you have fallen in love with a show or two, there’s nothing wrong with that. But try and limit your TV viewing and see if your wants decrease. If you can go cold turkey with “your shows” you can always watch narrative shows later on DVD. I prefer this as I can avoid the commercials and watching them at my own pace.

17 ways to live happily...credit cards.

Freeze your credit cards.

Literally. Drop your cards into a jar, fill it with water and then set them in the freezer. Then, every time you want to use your credit cards you must take the time to defrost them. In the time it takes to remove the cards from their icy tomb you can come to your senses about the intended use. If the use is a legitimate use then you won’t mind waiting around for some ice to defrost.

17 ways to live happily...money

Take an active interest in managing your money.
Oh, for the days when you went to work every day for 30 years, retired and took home your gold watch and sat contentedly in the Lazy-Boy lounger while your steady pension check arrived in the mail every month. Today, most of us don’t have a pension and we must figure out the best place to stash our retirement money, or how to manage our 401k accounts. Not only that but you can bank practically anywhere on earth and charge nearly all of your expenses on your credit cards.

All of those choices mean that you must understand that much more about all of these different financial services. If you are a person who doesn’t understand the basics of investing or paying taxes or balancing your checkbook, your money will suffer and sadly, that affects you.

How do you learn about all these topics? Your library has a plethora of books on managing your money. Do yourself a favor and read five or so books to familiarize yourself with your money. Once you have got the basics down, once per year, skim through a few of the latest books to see if there is new information available that will benefit you.

17 ways to live happily...mate.

Find a partner who wants to live happily on their own salary.

It’s no use being happy to save money by eating beans four times per week when your partner isn’t happy unless s/he eats steak five times per week. Say you are happy camping at a lake for a vacation while your partner wants a three week cruise in the Mediterranean. There are so many messages to spend all your money, and so many places to spend it, that it is nice to have a partner who shares your same goals. When you share the same vision of beans and camping and a nice “date” of a neighborhood walk, living well on what you have is that much easier.

17 ways to live happily...education and house.

Don’t spend too much on your college education or your mortgage.

One of these I did well, the other, I am still living with the consequences. When you are in college, money is so ephemeral. There are all these loans they want to give you that you can pay back later. Plus, you are in the program you are in which is going to lead you to a great job and Bill Gates isn’t handing out cash, so of course you will take the loans.

All of the above makes sense while you are in school. But when you get out and you are not working in quite the job you thought you would for quite the amount of money you projected, it is depressing to pay that student loan bill every month. Do whatever you can to find some other way to pay for your schooling. Or, radical notion, don’t attend college at all. If you are just going to go, it’s not worth it. Go get a job and work for a few years until you figure out what the heck you would be happy paying someone to teach you about.

As for a house, I pined for a mortgage of my own through the last housing bubble. I watched horrified from the sidelines while cute little houses for sale for a reasonable $135,000 shot up to above $200,000. Though people with the same income level were buying houses for this much or more, I did the figuring and knew that I could never pay that much into a mortgage every month. I wasn’t buying the argument that stretching a bit was fine because the house would only increase in value. Not only that, but how long would it take me to save the down payment when “normal” houses were upwards of $240,000.

Luckily for us, we have a great land trust organization in our town. Through Portland Community Land Trust we bought our home and today have an affordable mortgage. I’m glad we don’t have to scrimp every month to make our payment and I’m glad that we are not “upside down” on our house right now. The lesson? Do your research and see if you can find an alternative home buying program that works for you.

17 ways to live happily...children

Don't have children.

It may be too late for some of you, but if you don’t have an innate desire to have children, then don’t. I know that your parents probably want grandchildren and that there is subtle pressure to reproduce from all corners. However, raising children is hard work and if you aren’t into it, your child is the one that suffers. From a “living within your means” standpoint, the less people you have to spread your money around to, the easier it is to live within your means. Plus, you know how hard it is to resist when you yourself want “fabulous tchotka that will make your life so much better”? Imagine if it was your cute 8 year-old offspring making the argument. Based on the number of Heeleys at the school I work at, I’m guessing that saying “no” to the fruit of your loins is even harder than saying to yourself.

17 ways to live happily...walk.

Take walks.

Walks are a great form of free entertainment. You get some exercise. You get to look at interesting houses, buildings, people, and lawn art. If you walk with a companion, you get to have some good conversations. It can also benefit you in other ways. When I was trying to understand better my 35 millimeter camera I took a 30 minute walk every day where my goal was to take three pictures. I ended up understanding my camera and how to frame a picture, plus some of the pictures turned out great and ended up framed as Christmas presents.

17 ways to live happily...weight

Maintain your weight.

I’m not the most successful with this item, but I know that maintaining your weight is a very good way to save money. First, you aren’t eating more than you need, so your food bills might be a little less. Secondly, your heath will benefit. Even overweight people are better off maintaining their weight rather than getting caught in the yo-yo cycle where they gain and lose large amounts of weight. Thirdly, when you maintain your weight you can wear your clothing until you wear it out.

17 ways to live happily...clothing.

Avoid new clothes.
Clothes cost a lot of money. And really, how many times do you wear that item before you are done with it? I don’t really like to spend very much money on clothing, but I also don’t like cheaply constructed clothing. The solution: your local thrift or consignment store. By doing all your shopping at either of those two places you will save a bundle. It may not be the latest, latest fashion, but really, do you keep up with fashion that much? I thought not. You just want clean, presentable, comfortable clothes that don’t scream 1976. My exceptions: underwear, bras and shoes

17 ways to live happily...

Live on the dull edge of technology.

Do you need to be a complete Luddite to live happily on your salary? Nope. But if you resist buying each gizmo and gadget when it comes on the market, you will save yourself a lot of money. Better yet, make friends with someone who is always on the cutting edge of technology, and gives you their castoffs. Flat screen TV? HD DVD? Don't buy one right now. Wait a few years to see if that technology is still going strong. When I was in elementary school scooters became really popular. Both my brother and I really wanted one but our parents told us to wait a year or two because they thought it was a fad. We were sure that scooters were here to say, but it turned out that no one even rode a scooter a year or so later.

17 ways to live happily...Library!

Love your library.

It really amazes me that people buy books. There is a lovely institution in nearly every town where they will just let you take home your books (and DVDs and CDs and magazine and sometimes tools) for free. I read a lot, and take a lot of books out of the library, and what I most love is that I don't have to read any book I check out because I didn't buy any of them. I can grab something that looks promising and give it back if my interest wanes after 50 pages. When I do buy books, they have a different vibe. I must read the entire thing because my hard-earned money was used to obtain it.

I also find I am often paralyzed in the video rental store. Should I spend $4.00 on this movie or that. The library has rescued me from this dilemma. I just reserve the movies I want to see and when they arrive, the library lets me know. Voila! Instant free entertainment. Check out all the things your library will give you for free.

(Boise Readers will note the shout-out to the Boise Public Library! where I spent many happy hours.)

17 ways to live happily...Cook

Learn to cook.

When you rarely cook and don't know how, it seems like cooking is much more expensive than going out. You have to buy all those ingredients you never use again and there is a pretty good likelihood that what you cook won't taste as good as what you could have ordered. But if you start to cook regularly (and don't cook from one of those cookbooks with 42 rare ingredients and 21 separate steps) you will most likely find that cooking is much cheaper than what you can order and plus you can have it your way. Plus, cooking can fulfill your sense of adventure. Start small, but start cooking.

17 ways to live happily...Have an emergency fund

Have an emergency fund of at least something.

How many years have I been saving up a three or six month contingency fund? Roughly ten. Have I ever come close to having even three month's salary saved? Once. Then I moved across the country and was unemployed for awhile and that cushion disappeared. But the reason I haven't been able to maintain my savings goal is because I kept running into emergencies. Did the fact that I didn't have all three months salary matter at that point? Nope. It still helped me that there was money there. I'm hoping that, at this point in my life things have settled down enough that I can get that three to six months cushion in the bank over the next few years.

17 ways to live happily...Ride a bike.

Ride a bike.

Why do people in the US love their cars? Because they give them freedom. Not having a car means getting the freedom of keeping your money, but giving up the freedom of just jumping in the car and going somewhere. The bike gives some of that freedom back. Bikes are cheap, they get you some exercise while moving you from place to place and you can maintain them for less than $100.00 a year. Plus, they are fun to ride. Reclaim that kid feeling and get on a bike.

17 ways to live happily...Drive a junker

If you must own a car, drive a reliable junker.

I grew up in Boise, Idaho and if I still lived there I probably would own a car. Due to its bare-bones public transportation system I don't think I could live a full life based on the bus schedule. If I did live in Boise, and did own a car, my hope is that I would be driving a reliable junker. The importance of a reliable junker (or even nice used car) cannot be overstated. They run well, they don’t cost very much, and because you aim to drive them until they die, you don’t have to get wrapped up in the pristine paint job. They don’t automatically lose value when you drive them off the lot as new cars do and once you already own an older car there is no pressure on you to keep up with the Jones’ by replacing your current new car with an even newer car.

The radio station I listen to has an ad that actually says, "Don't listen to your parents about buying a car and driving it until it dies. Today, you need a new car every couple of years." If you believe this statement, STOP. It is not true Actually, you never need a new car. With a reliable junker, you never have to worry about fender benders, exorbitant car payments, or your car getting stolen.

17 ways to live happily...Don't own a car.

If at all possible, don't own a car.

Since college, I've always lived in towns with good public transportation. If I ever have to move I will do my best only to move to a town with public transportation. Cars are the great sucking drain on your salary: you buy one with a lot of your money then put a lot more of your money into it in the form of gas and insurance and repairs. Do what you can to avoid buying a car so you can avoid the car owning you.

17 ways to live happily...

17 ways to live happily on what you make.

I make okay money now, so it is easier to live happily on my salary. Now that I have broken through the $12.00/hour barrier, there is more living and less juggling. I've had lean years, but they have (mostly) been abundant anyway because I do my best to be happy with what I have and try my best to limit my wants.

Suze Orman, financial planning guru, says that everyone she councils, whether they make $150,000 a year or $20,000 per year, wishes they made just about $500.00 a month more than they do. If only, her clients tell her, they just made $500.00 more per month everything would be fine. What I take away from that story is that I will never really have enough, enough, but I might be able to happily make do with what I have.

The over the next few weeks, I'll publish 17 things I've learned about living well on what I have.