I appeared on CNN’s “Your Bottom Line” this past weekend to give advice to Michael Andrews, who has been looking to sell his home in Maryland and move up to a larger place before his son started kindergarten this fall. He and his wife bought in 2005, close to the top of the market. The problem: Prices are forecast to decline another 10 percent in Prince George’s County in 2010 because of an oversupply of homes on the market. Although sales are up over last year, and homes are on the market a shorter length of time, that may be because of more foreclosure sales, and banks agreeing to short sales.

The Andrews live in a family-oriented community with low crime and good schools. Michael works for the University of Maryland and his wife for the federal government. The last few years, the university has not offered cost-of-living increases, and even furloughed workers because of budget constraints. Michael told CNN that he can’t refinance, and that his mortgage interest rate is “kind of high.”

Television time constraints being what they are, I didn’t have a chance to give a full response to the Andrews’ situation. I thought I’d give it here, since so many homeowners are in a similar boat:

1) Before they consider a move, the Andrews should reinforce their financial foundation. They have
a “kind of high interest” loan and can’t refinance. Why can’t they refinance? Typically it’s an issue of inadequate income, excessive debt, negative equity or poor credit. If they are underwater on the loan, they don’t have a whole lot of options. But if the issue is excessive debt or poor credit, they can tackle those issues. Lenders typically look for a debt-to-income (DTI) ratio of roughly 40 percent – meaning all monthly debt payments are no more than 40 percent of monthly income. (So if someone earns $60,000 and takes home $5,000 each month, their debts should total no more than $2,000.)

The Andrews should eliminate all revolving debt (credit cards, car loans, home equity lines of credit),and save up at least six months living expenses in the event of a job loss. As they pay off debt and boost savings, their credit scores will organically improve.

2. The Andrews should look at the bigger picture and rank their priorities. Maybe it’s wiser to open a 529 college savings plan for their son than to buy a bigger home, because the cost of college continues to exceed inflation (and the amount most people are receiving in their investment returns). To reach the goal, you have to start early.

3. Remember the “hedonic treadmill.” Psychologically, very often the more we have the more we want; we get something – like a home – adapt to it, and want a bigger home. But the Andrews probably won’t enjoy a bigger home as much as they expect: There will be a higher mortgage payment, higher property taxes, utilities, insurance and maintenance costs, and possibly a longer commute. That may reduce the happiness they get from the purchase.

They should think about other uses for the money they would put into a bigger home. Research shows the money spent on experiences, and time with family and friends, makes us happier than the money spent on things. So they might find higher well-being spending the money on traveling, sporting or cultural events, or hosting barbecues for family or friends right in their own back yard.

I worked with Good Morning America on two segments that aired Monday and today, helping the Myer family of Connecticut save on back-to-school supplies and back-to-school clothing. We were able to cut their annual budget in half with a number of strategies. (In my own family, we’re waiting for Labor Day sales to tackle the clothing needs, but we finished our school supply shopping at the end of July, and saved a bundle over last year by shopping at a big-box store (Target) over an office supply store (Staples). Here’s the video from today’s Good Morning America:

Like me, Beth Myers has three kids — Emily, 12, who is going into seventh, Brian, 10, who is entering fifth grade and Lindsay, 3, who is headed off to pre-school. Clothing costs can get pretty hairy at this age, when your kids start to gravitate to the specialty stores in the mall where their friends shop. Back to school is a great time to talk to kids about the value of a dollar, and try to instill a few money lessons. Click here to see a few of the outtakes with additional ideas.

I also contributed to a Bankrate.com slide show featuring a roundup of back-to-school shopping tips. Check out Heather Larson’s story here. How will you save on back-to-school shopping this year? Comment here or email me at laura at laurarowley dot com.

Meanwhile, back-to-school is one tiny drop in an ocean of parental financial responsibility. Is it possible to keep life, and finances, simple and frugal after you have kids? Check out that topic — and post your comments — on my Real Simple blog.

MSN Columnist Donna Freedman has a nice piece today called “Scaring Off the Financial Boogeyman,” which looks at deep-seated beliefs that limit our progress to wealth and happiness. She quotes me talking about how to let go of financial fears that set you back, by setting blue-sky goals and listening to that inner voice that tells you why they’re impossible.

What illusions about money are blocking you from grabbing hold of your financial life? Whether your money issue is related to earning, spending or saving, here are eight steps to changing your worldview:

1. Make a radical proposal to yourself around wealth: I want to earn/have/do ______.

2. Listen to the inner voice of protest: You can’t because ______.

3. Challenge your doubts: That objection is false because ______.

4. Identify the beliefs behind them: I thought that way because I believed ______.

5. Examine the origin of the beliefs: I learned that when ______.

6. Revisit the experiences and emotions that gave birth to the beliefs: That lesson took hold when I experienced ______.

7. Challenge the belief system: The belief is untrue because ______.

8. Shift to a new paradigm: The truth is, I can earn/have/do ______ because ______.

We don’t have to be victims of our worldview. The way we manage money, our attitude toward it, is ultimately a choice. No matter what money mind-set we have developed over time through life experience, we have the power to re-shape it. We can work around our money personalities; we can seek out individuals and communities that support our goals rather than hold us back; we can reject negative beliefs we learned in childhood and choose a healthier set of values.

Have you overcome a negative illusion that blocked you from achieving financial well-being? Comment here or email me at laura at laurarowley dot com.