Consider lifestyle, sacrifices when purchasing new home

The Crumpton family, of Killen, is considering its options toward purchasing a home that will give them more square footage and more rooms to accommodate their needs.

Donna and Tommy Crumpton are newlyweds and said that with Donna's son and Tommy's twin boys and two daughters staying at the house on occasion, they need more space to have everyone live comfortably under one roof.

"We're trying to stay within our budget," Donna said. "I'm a little bit conservative and try not to bite off more than I can chew. There are so many people out there that have bitten of more than they can chew."

Purchasing a home is an enormous decision, and the Crumptons are taking into account their total financial picture before making such a sizable investment.

That total picture starts with the family's income. The U.S. Department of Housing and Urban Development reported that the estimated median family income for 2007 is $47,000 for the Shoals, compared to $40,652 in 1999. The Alabama estimate for median income for 2007 is $48,700, and nationally it is $59,000.

So, can a family live comfortably in the Shoals on an income of $47,000?

Time Self, president of Tom Jones Insurance and Financial Services in Muscle Shoals, said that it is quite possible to live comfortably on that amount, but any income, no matter where you live, requires careful planning.

"On $47,000, a couple can live comfortably in northwest Alabama, but they can't live extravagantly," Self said. "I think the key to living on any amount of money is having a budget and sticking to it."

But that doesn't always happen.

"A recent article mentioned the average family is now spending $1.22 for every dollar that it gets in disposable income, overextending themselves by 22 cents," said Samuel Addy, director and associate research economist at the University of Alabama's Center for Business and Economic Research.

The average family also has up to $8,000 in credit card debt, he said.

The majority of wage-earners take out hundreds of thousands of dollars in loans or use credit cards to be able to afford their homes, cars and other expenditures.

"Instead of living with what we have, we go out and borrow. Most of us are working to pay debt, and that's just the opposite of what it was 40 or 60 years ago," Self said. "If we would just sit down and ask, 'Is this something we really need or really want?' "

Addy said there are several financial tips to make sure you spend or save your earnings wisely.

"The lifestyle people choose is really important," he said. "It's OK for people to realize you can adjust your lifestyle as your income adjusts. Don't assume a certain lifestyle and wait for your income to adjust. There isn't much of a guarantee."

One of the most important practices is being a smart saver and spender of a family's income.

"You need to know how to manage your money," Addy said. "We have to adjust our expenditures and don't eat out if we don't have to and don't get the latest technology. The main thing is spending sensibly and saving. By saving, we end up spending within our means."

Self said families should be in the habit of designating a portion of their income toward a savings account or emergency fund.

"A good rule of thumb is if your company has a 401-K, participate in that," he said. "One of the things that should be at the top of the budget is savings, then the living expenses, then you work on the 'wants.' "

Money that is saved through the years can be used toward larger purchases like a downpayment on a house or purchasing a vehicle, Self said.

"It has to be a conscientious effort on the part of the family," Self said. "You can sacrifice now for rewards later."

Donna Crumpton said she and her husband want to create a plan before making the final decision to buy a home. The family's income and budget are always considered when making a large purchase, she said.

"You have to think about everything when you're looking at selling your house. It's not just something you jump up and do on the spur of a moment," she said.

Addy said taking income and budget into consideration is always important when making pivotal decisions, like sending a child off to college or purchasing a new home.

Typically, when making a home purchase, for instance, you shouldn't spend more than two-and-a-half times your income, Addy said.

For a family with an income of $47,000, Addy said the home shouldn't cost more than $120,000.

"If you go beyond that, you'd be extending yourself," he said.

In a two-income family, the decision to buy a home should be made based on one salary because that's allowing for risk, Addy said.

"If you go with the two-income decision, you might end up buying the more expensive home. If one person loses their job, you've overextended your ability to make house payments," he said.

When a mortgage loan is considered, homeowners should look at their after-tax income rather than their annual gross income, in order to realistically lay out what payments they can afford each month. Remembering to stay within the bounds of what a family can afford is important when purchasing a home, Addy said.

"Banks have tightened their lending," he said. "There's not going to be more easy money to play around with anymore, which is going to make it even more important for families to stay within their means."

Addy said what usually affects the financial state of a family is family size, spending choices, habits and cost of living.

"Wages are lower here, but one can manage because of the cost of living," he said. "The cost of living enables us to spend and have a decent living on relatively lower wages."

That's something the Crumptons are counting on.

"What we're looking for is probably the same dollar amount of what our house is worth or an older home that's a fixer-upper and something that has more square footage," Donna said.

"It's been something we've been talking about since we got married. If I can get what I feel is a fair price for my house, and turn around and buy something with more square footage, then it'll be worth it."

TimesDaily Staff Writer Kenda Williams can be reached at 740-5720 or kenda.williams@timesdaily.com.