"When are you going to write about your hot tub?" readers have been asking. "We want photos of you in your hot tub." Fine. Here's a typical scene on any given afternoon. (This photo was taken with my iPad, and I can't figure out where the camera lens is...)

The cats like the hot tub too, but only when the lid is closed. I suspect they'll live on top of this thing during the winter.

"How much house can I afford?" Answering this question correctly is one of the keys to building a happy, wealthy life. Unfortunately, there's a vast housing industry in the U.S. that's geared toward providing the wrong answer.

You see, housing is by far the largest expense in most people's budgets. According to the U.S. government's 2016 Consumer Expenditure Survey, the average American family spends $1573.83 on housing and related expenses every month. That's more than they spend on food, clothing, healthcare, and entertainment put together!

Too many folks struggling to make ends meet focus their attention on fine-tuning their budget. They try to save big bucks by clipping coupons, growing their own food, and/or making their own clothes. While there's nothing wrong with frugal habits -- I applaud everyday thriftiness! -- all of these actions combined won't (and can't) have the same impact on your budget as keeping your housing payments affordable.

Part of the problem is what I call the Real-Estate Industrial Complex, each piece of which has a vested interest in convincing consumers that bigger, more expensive homes are better. Real-estate agents, mortgage brokers, home-shopping shows, and glossy magazines all encourage folks to buy at the top end of their budget. But buying at the top end of your housing budget is dangerous.

Buying a home is a huge decision, financially and otherwise. If you're going to purchase a place, it's important to know how much house you can truly afford.

Debt-to-Income Ratio

Economists have used decades of financial stats to create computer models to predict how much people can afford to spend on housing and debt. Banks use these models to figure out how much they think you can afford to spend on housing.

Traditionally, lenders use what's called a debt-to-income ratio (or DTI ratio) -- a measure of how much of your income goes toward debt every month -- to estimate how much you can afford to pay for a home without risk of defaulting. This might sound complicated, but it's not.

To find this ratio, divide your monthly debt payments by your gross (pre-tax) income. So, for example, if you pay $400 toward debt every month and you have an income of $4000, then your DTI ratio is 10%. If you pay $800 toward debt on a $4000 income, your DTI ratio is 20%. The lower your debt-to-income ratio, the better.

Banks and mortgage brokers look at two numbers when deciding how much to loan:

• The front-end DTI ratio (sometimes called the housing expense ratio), which includes only your housing expenses: mortgage principle, interest, taxes, and insurance.
• The back-end DTI ratio (also known as the total expense ratio), which include all of the above plus other debt payments like auto loans, student loans, and credit cards.

The key thing to understand about debt-to-income ratios is that they're used to estimate the lender's risk, not yours. That is, your mortgage company uses them to check whether they think you'll be able to make the payments -- not whether you can comfortably make the payments.

If you want room in your budget for fun, you should opt for a lower debt-to-income ratio than your real-estate agent and mortgage broker say you can use.

If you're a money nerd, you can read more about debt-to-income ratios at Fannie Mae's website.

How Much House Can You Afford?

During the 1970s (before credit-card debt was common), DTI wasn't split between front-end and back-end. There was only one ratio, and it was 25%. If your mortgage, taxes, and insurance costs were less than 25% of your income, people assumed you could make the payment.

This is still an excellent rule of thumb: Spend no more than 25% of your budget on housing. (In fact, this is the number that money guru Dave Ramsey advocates.)

That said, debt-to-income guidelines have relaxed over the years.

• When my ex-wife and I bought our first home in 1993, our mortgage broker told us that our front-end DTI ratio had to be 28% or lower, meaning we couldn't pay any more than 28% of our gross income toward housing. The back-end DTI ratio was capped at 36%, which meant that our housing expenses and other debt payments combined couldn't be more than 36% of our income.
• When my ex-wife and I bought a new home in 2004, the accepted DTI ratios had grown by 5%. "That 28% figure is outdated," we were told. "Most people can go as high as 33%." The back-end ratio had been raised to 38%.
• According to the Fannie Mae website, in 2018 maximum back-end DTI ratios are up to 45% (and sometimes even 50%). These numbers are insane. Nobody should be spending half of their gross income on debt -- not even mortgage debt! That's a recipe for financial disaster.

Here's a little table I whipped up to show what sort of housing payment you'd be looking at based on your pre-tax income (the left-hand column) and various debt-to-income ratios (the header row):

A 5% increase in your debt-to-income ratio might not seem like a big deal. But when you're talking about a house payment, it's huge.

In 2016, the average American household earned $74,664 before taxes. Using this, a 5% change would be $3733.20 per year or $311.10 per month. Many folks lost their homes during the housing crisis because they took on mortgage payments that were just $300 more than they could afford each month.

When Kim and I moved last summer from our riverfront condo to this country cottage on the outskirts of Portland, one of my primary aims was to slash our spending on both housing and food.

Although we owned our condo free and clear, living there still cost us roughly $1200 per month. Plus, there were the added costs that came from living so close to bars and restaurants. Sure, we didn't have to eat out as often as we did -- we understand that was a choice -- but we enjoyed exploring what the neighborhood had to offer.

Well, I've now had time to gather enough data to determine whether we were able to achieve this goal, to cut our monthly costs. I'm pleased to say the answer is "yes"! But for a few years, this gain is going to be completely negated by our massive home remodeling project.

I cringe when I remember learning to drive. At fifteen-years-old, I was impatient, full of nervous energy, and so short that I could barely reach the steering wheel. (Which is still kind of a problem, but I digress.)

My parents were backseat driving, of course, instructing me on how to drive the rural, dirt road just outside our neighborhood. “Let off the brake,” they said, and the car began to coast, slowly. Cool, I can handle this, I thought. “Hit the gas,” they said. Chaos ensued.

I swerved into the other lane, and when I yanked the steering wheel to straighten out, the car jerked in the other direction and I almost hit a fence post. My parents shouted. I screamed. All of us were terrified. I felt completely frazzled and out of control. It was like the car had a mind of its own.

For many of us, managing money feels something like this. We try to make a budget and set some limits for our spending, but our financial situation always seems to have a mind of its own: your bank account overdrafts, you get a pay cut at work, your vet bill is considerably higher than you expected.

But just as when you were learning to drive, developing a sense that you're in control can make a huge difference. When I finally felt like I was the one controlling the vehicle, driving became second nature.

Research, like this 2014 study, shows that simply feeling powerful inspires people to make better financial decisions. They develop financial confidence. For this reason, I’m a fan of quick money wins — small achievements that may not make a huge difference on paper, but which do wonders for how you feel about your financial situation. These quick wins won’t make you a millionaire overnight, but they can empower you, and that’s everything.

Quick wins give you financial confidence, and that helps you make better money decisions in the long run. (As the study put it, “feeling powerful increases saving.”)

In other words, change your attitude about money and you can change your behavior with it, which can lead to actually being in control of it. Try your hand at a few of my favorite money wins.

Note: Today's post is a little different. It's a letter to a young friend, who asked to remain anonymous. She's 21 and just landed her first job. Now that she's bringing home a regular income, she wanted advice on what to do with her money. Here's my response.

First up, I think it's awesome that you asked me for advice. That took guts! Plus, it's a sign that you're already making good decisions. You're being proactive, taking charge of your own life. I like that.

Like you, my parents didn't teach me how to handle money very well. They did their best, but it's tough to teach what you don't know. I've had to figure a lot of this stuff out on my own, and I've made a lot of mistakes along the way.

You'll make mistakes with money too, I'm sure. They key is to not let these mistakes compound. Don't let one mistake lead to another mistake. When something goes wrong, pause. Take a deep breath. Don't panic. Call me for advice, or ask somebody else who seems to have things figured out. Okay?

I have so much I want to share with you, but I'm going to hold back. I don't want to overwhelm you with stuff that you don't need to know right now. Do me a favor, though, and read that book I mailed you: I Will Teach You to Be Rich. There's a lot of good info in there. Some of it won't apply to you yet, but it doesn't hurt to read the whole thing so that you can know what's coming in the future.

For now, let's focus on the fundamentals.

First Things First

After thinking about this for nearly a week, I think that your focus should be setting up what I call your basic "financial infrastructure", then creating three buckets for your money.

To start, you need two bank accounts: a checking account and a savings account.

You told me that you already have a Capital One 360 checking account, which is awesome. That account has no fees. (Some banks, like Wells Fargo, charge an outrageous $10/month fee for checking. This is insane. There's never a good reason to pay a bank for the privilege of having an account with them.)

You don't need a high income to achieve Financial Independence.

Making more money helps, sure, but if you're diligent about cutting costs, it's possible to reach financial freedom on even an average salary.

I want you to meet my friend, John. John is an 81-year-old retired shop teacher. He's a millionaire -- but you'd never know it.

John started life as a carpenter. In his thirties, he went back to school to become a teacher. He spent the next twenty years teaching shop at a junior high school in a poor part of town. He retired to financial freedom at age 58. He never had a huge income and he didn't inherit a fortune.

So, how'd he get rich? He pinched his pennies and doted on his dollars. John achieved Financial Independence by ruthlessly cutting costs.

• John doesn't live in a mansion. He lives in the same small ranch house he bought for $10,500 in 1962. He paid off his mortgage early, and has now lived in the place for 53 years!
• John doesn't drive a brand-new Mercedes or BMW. He drives a 1998 Chevy minivan he bought for cheap five years ago. It's ugly, but he doesn't care. It meets his needs and he has no plans to upgrade.
• John doesn't take lavish vacations. He spends his summers in southeast Alaska on an old 38-foot fishing boat that he bought with cash in 1995. He spends his winters doing volunteer work on farms and ranches in New Zealand.
• John doesn't like to dine in fancy restaurants. He'd rather make his own meals at home. "For me, restaurants are a waste of money," he says. "I don't appreciate them."

Does John sound like a typical millionaire to you? If you were to believe TV, movies, and magazines, you might think most millionaires live like this:

We're constantly bombarded by messages that wealthy people enjoy lavish lifestyles filled with luxury. From my experience meeting with dozens of millionaires over the past decade, this kind of lifestyle is the exception not the rule.

Most wealthy people I know are like John. They're quiet millionaires. They practice stealth wealth.

But don't just take my word for it. Let's look at what the experts say.

Here's a new thing for me: Yesterday, I met with a friend to give her financial advice. Believe it or not, in the twelve years since I started Get Rich Slowly, nobody has ever asked me to sit down with them and review their budget and investments. Pamela is the first. (And because I forgot to ask her permission to share this info, for this article I am totally changing anything that might identify Pamela.)

I've known Pamela for almost six years. She cuts Kim's hair, and sometimes she cuts mine. She knows I write about money, but I don't think she's ever read anything I've written.

Pamela is 41. She's single. She owns her own business. She loves her work and she's happy with her life, but she's starting to think about the future. Is she saving enough? Will she have enough for retirement? What if she wants to buy a home? Is there anything about her budget that seems out of line? When she cut my hair last month, she asked if I'd be willing to sit down with her over coffee to look at her numbers.

As relationship month continues at Get Rich Slowly, I'm getting lots of questions from readers about how to handle money when other people are involved. It's a difficult subject!

For instance, here's an email I recently received from LM, who is looking to convince her husband that they need to change how they're handling money:

We've been happily married now for almost ten years. We have two kids (aged five and six). I'm a stay-at-home mom. My husband is an engineer with an above-average salary (about $80,000 per year). We have two cars. We have no debt except for our mortgage. (We have about ten years left on that.)

Long-time readers know that I love old instructional films -- the kind of thing we older folks used to watch in high school. ("Play it backwards!")

Because the previous owners of Get Rich Slowly "unpublished" all of the old films I once shared, I get the joy of sharing them again with a new audience. Today, we start with a gem: "Your Thrift Habits", a film designed to teach teenagers how to budget.

Produced in 1948 by Coronet Instructional Films, this 10-minute short is filled with great advice -- and it's fun to watch too.

YNAB: You Need a Budget Review

If you're ready to account for where every cent of your money goes, You Need a Budget could work for you. The app is based on the premise of "giving every dollar a job," meaning you budget for every expense -- fixed, discretionary or otherwise. Want to buy a new purse or pair of shoes? If your monthly clothing budget is $100, then you may not be able to afford it this month. Friends want to double date at that trendy new Italian restaurant? It may not be in your $200 dining out budget.

The app makes budgeting straightforward, allowing you to see how much over or under you are for a particular line item. But it's best for people who want to get serious about how much they actual spend and where they may need to make sacrifices to achieve a larger goal.

What I Liked

Zero-based budgeting is tough, but I can see its value. You have to account for every dollar coming in, either using it to cover monthly household expenses, pay off debt, for dining out and for what YNAB calls "quality of life" expenses like vacation. During this process, I realized that I'm not as good a budgeter as I thought. I do a good job of tracking our spending after the fact, but I could improve when it comes to setting aside money for specific purposes -- basically being more financially proactive. For example, before using this app, I had no idea how much my husband and I spent each month dining out and we never really set aside a specific amount for this purpose. It was more like "we'll eat out no more than two times a week." I also had no gauge of my own discretionary spending, since this money comes out of my personal account. Using the tool allowed me to see that we spend less than $200 a month eating out, but that I need to keep a better eye on my discretionary spending for things like beauty and hair products and anything from Amazon.com (Amazon Prime admittedly has turned me into a shopping junkie). We plan to buy a house within a few years, so YNAB allowed me to see that these are two areas where we (or I) could curb spending and put that additional money toward a down payment. Actually seeing the budget also showed me that we could be saving more. We have more cushion than we need in our account for household expenses, so it might be better to put more of that money toward retirement or paying down my student loans.