Take Off the Rose-Colored Glasses

The best financial advice I ever received was this, "Never take a rosy view of the future."

It may sound a bit depressing, but it's not unlike the adage, "Expect the best, but prepare for the worst." That's what being financially sound does for you: it prepares you for the worst.

In 2000, Wendell and I bought our first home. We found a nice twin home, newly built, with a large master suite, a gorgeous kitchen, and a mostly unfinished basement. I can't remember how much the bank had approved us for, but the mortgage on the $129,900 for this home would stretch us to the max.

But we were eager to be done with apartment living, to have our own fenced yard where our one-year-old daughter could play safely. It would be close, but we could afford it. Kind of.

My folks decided to give us $20,000 for a down payment on the house. We were excited about the twenty grand, but didn't think a down payment was the best idea. Our loan officer at the bank suggested that we buy down the interest on our FHA loan. This would mean that our first year our monthly payment would be just under $900. The next year it would go up $100 and the third year another $100 where we would finally arrive at our real payment.

Since Wendell had just gotten a job offer, his first job after college, we should be fine. I mean, obviously his pay would go up next year and the year after.

By the time we bought down the interest, and paid our portion of closing costs, we paid essentially nothing down on the house.

Once we moved, I was surprised how much the upkeep cost. We needed blinds, a fence, a sprinkler system and grass. We had to get cable installed and all of our utilities started up. It was staggering.

Suze Orman's recommendation on home purchase, on her Women & Money website, is what she calls it the 40 percent factor. "When you rent a place it’s easy to know your monthly housing costs: it’s right there on the check you write to the landlord each month. Owning is a bit trickier. The basic mortgage cost is just the beginning of what you owe. It simply covers your principal and interest payments on the loan. But you then need to add on all sorts of other costs, including property tax, home insurance, as well as incidental costs you typically don’t have to worry about when you rent.... My housing rule of thumb is that you should add 40 percent to the basic mortgage amount to get a sense of your overall housing costs when you own."

If I only had had this tidbit of wisdom before this ill-fated purchase. If I could advise myself in retrospect I would say, Go get a condo or a townhouse. Find something with a neighborhood park close by. You need only stay five years, but buy reasonable and build equity. Then you can get a house with a yard. But wait just a few more years.

Two months after we moved into the twin home, my son was born. Three months after that, Wendell lost his job. 2001 was a horrible year for us. Wendell had four different full time jobs. We lived off his income when we had it, but we would go weeks at a time without any. During this time we were forced to rely on our church welfare, my parents and our credit cards.

As the fall rolled around again, our mortgage payment went up. Wendell had only had his job (he was selling cars now) for a couple of months. He was working on commission and our income had definitely gone down. In November, with our children ages two and half and one, we would learn we were in for another surprise: we were pregnant again.

Over the next couple of years things continued to get worse, or at least stay pretty bad, before they got better. And they got better slowly. Financially speaking, paying down our interest so that our payment was affordable right now, was probably the dumbest thing we've ever done.

Thankfully, we've learned that lesson. Now when we make decision we see if we can afford it now. Not if we think we will be able to afford a year from now or two years from now. The rose colored glasses are off and if you want to know the truth, I like the view better this way.