4 steps I took to figure out how much house I can afford

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• When my husband and I were buying our first house, we had to figure out what we could afford.
• The answer depended on the cost of our bare minimum needs and the extras we were willing to pay for.
• We had an easier time putting together a budget once we had both those answers.

When my husband Ryan and I planned to buy our first house, we didn't really know what we could afford to spend on a house, because the word "afford" isn't as simple as it seems. What a person can afford means something different to almost anyone you ask. What is comfortable to one person will be too risky for another.

As a couple, what we can afford is one of the most important financial questions we've answered, and we're still answering it.

The conclusions we drew from discussions around what an affordable mortgage is for us led us to adopt the simple financial principle of living below our means. That just means spending less money than you actually have and saving the rest.

Here are the specific steps we took to figure out how much mortgage we could afford and how anyone can use these principles to save hundreds or even thousands of dollars a month.

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1. Figure out your bare minimum

First, we determined what a livable wage is for our family. This step is important because it takes your specific financial situation into account. We're two adults with one toddler. Living below your means looks differently when you're single than it does when you're part of a couple or have kids. Your livable wage is the minimum amount of money you need to support the family.

At this step, it's important to strip your expenses down to the absolute necessities. This is the time to get clear as a family on the income numbers you truly need to hit each month, because it will set you up to determine your actual living costs in the next step.

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2. Realistically assess your actual monthly expenses

The livable wage is a great guideline for the absolute minimum you need to survive as a family, and it's a great number to know. But this step is all about understanding the reality of your expenses.

What does it really cost to support your family when you factor in "extras" like leisure activities? What does each person in the family value, and where do you want to focus your money as a couple? In this step, you're answering the question: What is important to us individually and as a family?

During this step you should be realistic about what each of you needs to live a comfortable and fulfilling life.

3. Create a budget

This is a tedious part of financial planning for many people, but it's one of the most important. As a general rule, many financial experts recommend following the 28/36 rule, which means spending around 28% or less of your income on rent or a mortgage.

But like any rule, this is flexible. This is why partners need to sit down and consider how their budget supports their lifestyle and how comfortable they are with the margins of their budget.

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4. Live off one paycheck if you can

Ryan and I realized that the easiest way for us to save money automatically is to live off of one of our paychecks and save or invest the other paycheck.

If you follow this strategy, I recommend choosing the one that will go best support your needs as a couple. By choosing one paycheck to fund all or most of your living expenses, you automatically save the rest without any additional thought or action on your part and avoid lifestyle creep, or the tendency to spend more money as your salary increases. This extra money can go into one of the best investing accounts or another property down the road.