In the past month, I've traveled to Oregon and Utah. While there, I found myself house-hunting with a daughter and a sister. Both are married. Both see the benefits of home ownership and want to jump into the market, given the extremely cheap money offered by lenders (interest rates dipping into the 3s!) and strong appreciation potential.

Being with them and their spouses led me to contemplate, from the 10,000-foot view, a few principles inherent to successful home ownership. Here are several ways to think about money so that you can become a homeowner, prosper as a homeowner, and ultimately, sell your home at a profit.

Needs, Wants and Savings

Spending can be divided into three categories – needs, wants, and savings. Allocate 50 percent of your aftertax income for needs such as food, rent, transportation, etc. I always counsel couples to spend around 25-30 percent of their gross income on a mortgage payment and to get by on the least amount possible for transportation (homes appreciate, cars don't). Wants are things you can live without that make life easier or more enjoyable but should be no more than about 25 percent of your budget. Ten percent should go into a "rainy day" savings account and around 10 percent (more when you can afford it) into investments like IRAs or 401Ks.

I know a few local couples who really have this concept down.

"When we finished medical school," said Kasey from Derry Township, "we started saving for a home. We knew we wanted something that would be low maintenance and we were willing to wait for the right opportunity. We were very aggressive in paying off loans and setting aside money each month toward our future home. When we found the right home, we were able to move quickly. Knowing what we wanted, having a budget, and setting goals was really important to us."

The Rule of 72

Is buying a home worth the sacrifice required? Here's a way to figure it out quickly, without a spreadsheet or calculator. It's called the Rule of 72. This formula offers insight into how long a home, or any investment, will take to double its return by dividing 72 by the rate of return. If your home appreciates at 4 percent annually, it should double in value in 18 years (72/4). If you purchased at $300K and paid off your mortgage, you'll have $600K in equity in just 18 years, a nice chunk for
retirement. I'd say that's worth the sacrifice.

Keep in mind, in some "Sun Country" municipalities, we've seen upwards of 15 percent annual growth in home prices. Could these folks be doubling their investments in 4.8 years? Probably not, but if the market continues to climb, they could be close.

Pareto Principle

Now let's get back to the budgeting basics; it's a tough subject for many. The Pareto Principle, or the 80-20 rule, tells us that roughly 80 percent of outcomes are due to
20 percent of causes. To improve your budget, take a hard look at your expenditures and reduce the 20 percent of costs that are eating up 80 percent of your outgo. Is food costing you a fortune? Eating out is convenient but expensive. Cook from scratch, open a can of soup now and then or make a salad. The overall savings when you tighten things up will pay big dividends.

"We bought a very affordable house in Derry Township and are remodeling as we can afford to do so, with cash," said Heather B. from Hershey. "It takes a lot longer to do things a little at a time and there is always a project at hand, but we're very happy with the results; we're still raising our family, entertaining, and are in a completely different frame of mind as we remodel with cash. We've set less important things aside."

Owning a home can be a tremendous blessing. Keep Murphy out of your spare bedroom by being prepared.

For more information on budgeting, the local housing market data, and preparing for home ownership, give me a shout at 717-508-4610 or eileenvoyles@gmail.com.

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