When the money rules don't apply

By MP Dunleavey

Editor's note: Join columnist MP Dunleavey and a group of women as they seek to strip away the myths around money, liberate themselves from debt and find financial sanity. Follow the ongoing quest of the Women in Red every other Wednesday in Dunleavey's column on MSN Money.

Is it ever advisable to make a big purchase when you're not prepared financially?

Is it possible to alter your finances in order to match a change in circumstances?

Is it all right if you don't follow the rules and make choices first -- and figure out the money afterward?

Is it ever possible to trust your financial instincts, knowing your own strengths and the bigger-picture truth about your financial situation, and seize an unusual opportunity?

Judging by the fierce response from some readers of this column regarding a recent decision of mine, the answer in every case should always be no.

But my husband and I said yes to all of the above in order to seize an incredible opportunity to buy a home we hadn't expected to buy, even though this required us to take a couple of big financial leaps.

I got quite a text-lashing from those who were baffled by our apparently irrational, possibly irresponsible fiscal move, which I covered first in my New York Times column.

So my cigar-chomping editor at MSN Money suggested I do a follow-up report here, explaining the math behind our reasoning. "I hope you have some," he growled.

What were we thinking?

I don't like having to explain in public what are, for most people, intensely private decisions.

I am not alone in my quirks and foibles. I just happen to admit them -- to show readers that it is possible to live a financially sane life even when you're far from perfect.

I wanted to write this column now to show that not only did my husband and I do the math, but that our calculations involved far more than money. Although much of what I'm about to say I have already covered in columns over the years, I want to convey the whole context of our recent decision.

And because a sound money decision always requires looking at both sides of the same coin, I've included the up side and the flip side.

Heads: The math

When we bought our current house -- the subject of another debate! -- it was a sagging fixer-upper, a cottage originally intended as a weekend getaway and, we hoped, an investment.

• It cost $92,500. We have put at least $25,000 worth of work into it over the past five years.

• Including a $12,000 home-equity loan, we owe $107,000 on the house.

• According to a local real-estate agent's estimate, the house is worth about $140,000 in the current down market.

• Our mortgage and home-equity-loan payment come to $900 a month, because we pay extra on the second loan.

Tails: The issues

Shortly after we moved into that house full time, after our son was born, it became clear that it was uncomfortably small, especially because I work at home.

I don't have an office with a door. Our second "floor" is a finished attic with sloping side walls, where anyone taller than 5 feet 9 has a hard time standing. (That's where I work; I'm exactly 5 feet 9.)

I looked into renting an office in town, but office space was surprisingly steep: $200 to $450 a month.

When we stumbled across this new house, with three bedrooms, a proper office, a normal upstairs -- and a washer and dryer, glory be -- it seemed ideal. The challenge was figuring out how we could afford it.

Heads: The math

The new house was on the market for $210,000, but shortly after we made our offer there was a competing bid that kicked up the price to $225,000.

Our most impulsive move -- yes, you can call it crazy -- was deciding to match that higher offer before we had figured out whether we could afford it. To our credit, we weren't taking a blind leap: My husband had a small nest egg for a down payment, which we knew we could use for a purchase like this.

• Video: Buy your first home in a year

I had $14,000 coming in from a freelance project that would cover our closing costs, with some to spare for our debt.

The trouble was that the new mortgage payment would be $400 more a month. How could we afford that?

On the one hand, we had been willing to pay extra to rent an office. The monthly increase would get us a lot more than just an office.

My husband swiftly volunteered to get a part-time job to cover the difference.

Continued: On to the drawbacks

 1 | 2 | next >