Q: My wife and I recently purchased a house for $419,000 with a 10 percent down payment. We have no other debt, but feel that we may have purchased a house that is more than we can handle comfortably. I'm in sales so my income is variable. My base pay is $60,000 with the potential to earn another $60,000 in commissions. But my company provides information technology consulting, and we have noticed a distinct increase in competition that has affected all of our reps. My wife, meanwhile, has not worked outside the home in nine years. We have three kids, 12, 9 and 7. Since our last child was born, we have moved four times and we would prefer not to move the kids again. We also want one of us to have the financial flexibility to be available to the children. What can we do to achieve more financial comfort?
A: You probably know the answer. You need to spend less, make more or both.
It's no wonder you're feeling under pressure. Even if you got a great interest rate, your housing payments (mortgage, taxes and insurance) eat up half or more of your base pay. You would need to wring out every dime of that extra $60,000 in potential commissions to get your housing expenses down to 25 percent of your pretax income -- a comfortable level for the typical family.
Your lender gave you such a big home loan knowing you would move heaven and earth to pay your mortgage, even if it meant not taking vacations, skipping retirement savings and going into credit card debt -- the usual outcomes when people buy too much house.
Selling your home now, though, probably would wipe out most of your equity; selling and moving costs generally add up to about 10 percent of a home's value. Your desire not to decamp is understandable, given how often you've uprooted your family.
If you don't want to sell, though, something else has got to give. You and your wife should take another pass through your budget to see what can be trimmed, but the most likely solution is that you need to get a job with a higher guaranteed income or your wife needs to return to work at least part-time.
Fortunately, your children are in school, which should reduce or eliminate child-care costs, often a big drain on a second income. If she looks for jobs that coincide with school hours, she'll be able to be there for your kids when they get home.
There are other reasons your wife should consider outside employment. She could be economically vulnerable if you should die or divorce, given that her work skills are nearly a decade out of date. Part-time work can help her rebuild her resume. And a second job could be a lifeline for your family if conditions worsen in your industry and you lose your job. Finally, she would be able to contribute to her own retirement savings.
Given how long she has been at home, she might not earn much at first. But her income could rise quickly as she proves herself to employers. Someone who has successfully managed a household with three kids has a wealth of organizing and management skills that could be put to good use in the business world.
Pulliam Weston is a contributor to The Times and a graduate of the personal financial planning certificate program at the University of California, Irvine.
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