(FORTUNE Magazine) – When he isn't on the road, my neighbor Joel walks to work. It takes him about three seconds. "All I have to do is stumble out of bed, open the door, and I'm here," he says.

"Here" is the high-tech office that Joel created in a spare bedroom of his suburban Baltimore house. It's an impressive sight, dominated by a laminated, L-shaped workstation that occupies two walls and serves as home to two computers, printer, fax machine, modem, scanner, and other accouterments of the Information Age.

As national sales manager for a dry-cleaning equipment firm, Joel spends most of his work days traveling. His home office lets him keep his business affairs organized and make the most of the time he spends with his wife and kids. It also allows him to live in his hometown while working for a company headquartered in Atlanta.

"Everywhere I go, people tell me they're doing the same thing," he says. "They like the flexibility an office at home gives them. I can do everything I need to do right here. There's only one bad thing I can think of--when I work at home, I tend to eat too much."

Joel is proud of his office, or rather his offices. (He recently built one for the kids in his basement.) He's constantly improving things--a new desk or chair here, a new copier or computer there. "You know how when some people get depressed, they drink or do drugs?" he asks. "Well, I go down to Office Depot or Staples, and I buy something. Even if it's just new batteries for my Sharp Wizard, it makes me feel better. My house is full of the stuff."

Joel is one of a record number of Americans working at home at least part of the time-about 43 million this year, according to Link Resources, a New York City consulting firm. Link's figures show that the number of home-office workers is increasing 5% a year.

Why? Well, for starters, thousands of executives cut loose from their longtime employers have set up home offices to begin new lives as consultants, brokers, or financial advisers, say. More recently, large corporations, including AT&T, Holiday Inn, IBM, and Travelers Cos., have developed programs to keep some of their remaining workers home part of the time. Their interest in telecommuting is fueled partly by economics--setting up workers at home cuts office overhead--and partly by the Clean Air Act of 1990, which requires companies to reduce single-car commuting.

At the same time, the cost of setting up at home has dropped dramatically. Computers, modems, fax machines, and other electronic goodies have simultaneously become more powerful and less expensive. And the growth of remote corporate networks has helped cut the umbilical cord to the traditional office. For many workers like Joel, there's simply no need to commute--certainly not every day.

As a result, a lot of Americans are looking to reclaim some unneeded living space, set up their PCs, and start work. While creating a home office may seem easy, doing it right takes effort and careful planning. Your work space will affect your livelihood, your disposition, and your health. Buy the right equipment, create the right environment, and you'll be happy and productive. Do it wrong, and you'll feel as if you're back behind the wheel, fighting the morning traffic.

A home office can cost as little as $3,500, including computer equipment, or as much as $20,000. I'm a low-end guy; I started in the corner of the living room 12 years ago, when I hooked a Radio Shack Color Computer to an old TV that functioned as a monitor. But another friend of mine, who uses his home computer to churn out his newspaper columns, recently spent $1,800 to have his kitchen cabinet maker build a custom workstation. "I know it was an obscene amount of money, but I really like it, and I'm happy there," he says. "And if I get tired of it or want something different, I'll have it redone again. It's important to me to have a good place to work."

If that kind of expense makes setting up a home office seem intimidating, consider that you're investing in the most valuable commodity you have to sell--your time. If your computer helps you create proposals and estimates, bill your clients accurately, write the Great American Novel, manage your stocks and bonds, keep your books, track your customers, do research, or keep in touch with headquarters, it's earning its keep. And if your environment makes it easier and more comfortable to do all those things, your home office investment is paying off.

LOCATION

Unless you can afford an addition to your house or a lease on the apartment next door, your choice of real estate is limited by home geography and the amount of encroachment that your spouse, roommate, or significant other is willing to accept. Most home offices are in spare bedrooms (which can serve double duty when guests arrive) or in basements. In fact, setting up a home office is a great excuse for finishing off a basement or partitioning one that's already finished. An added benefit is that in so doing you'll add value to the house: an office can be a major selling point should you decide to move.

Pick the space most likely to be yours alone. Studies show that people who fail to separate "home" space from "work" space are likely to become workaholics and lose the flexibility and freedom they hoped to get. Sharing a work space means that other family members will want to play computer games while you're laying out a business plan. Most important, if your office is out of sight, nobody will nag you to clean it up.

No matter how tight your quarters, try to find enough space for two work surfaces--one for your PC, and one for a regular desktop for papers, bills, reference materials, and the other detritus of day-to-day business. An L-shaped area is best, so you can swivel easily from your computer to your desk.

EQUIPMENT

The computer market changes so quickly that anything you read about equipment is likely to be out of date by the time it's printed--including this week's newspaper ads. But over the years I've developed two general principles. First, get the best technology you can afford. Buying and setting up a computer takes hard cash--and lots of time and effort, since manufacturers still haven't figured out how to make a PC that you can just take out of the box and power up, with your software and data ready to go. If you skimp on the computer you buy now, you'll be upgrading the thing within two years, if not replacing it altogether. Even with today's rapidly changing technology, something close to the state of the art will be perfectly good for four or five years.

Second, avoid trendy, all-in-one gadgets. A circuitboard that turns your PC into a voice mail system sounds great--until you consider that you're running $3,000 worth of computer equipment 24 hours a day to replace a $100 answering machine. Leaving on overnight a machine with complicated electronic parts and a hard drive that will eventually wear out makes no sense to me.

Given those guidelines, here's what you'll need:

A personal computer: The SO/HO (small office/home office) market is expected to account for more than 40% of computer sales next year, so retailers' shelves are overflowing with powerful, well-equipped systems designed for doing business at home.

The brand you buy--IBM, Compaq, AST Research, Hewlett-Packard, NEC, Packard Bell, or the dealer's house brand-isn't as important as how much computer you buy. I recommend an IBM-compatible machine, with a Pentium microprocessor running at 75 or 90 MHz (a measure of how quickly the computer processes data), eight megabytes of internal memory, and a 540-megabyte or larger hard drive. Most of these packages include a CD-ROM drive, a sound board, speakers, an internal modem, and a bundle of starter software. Expect to pay $2,000 to $2,500.

There's no way to guarantee that your PC won't turn out to be a lemon--but the length of the manufacturer's warranty is a reasonable measure of the company's faith in its hardware. In various surveys of customer satisfaction, Compaq, Hewlett-Packard, and IBM rate highly. Packard Bell, which offers some great deals, ranks among the worst. Besides checking out the manufacturer's reputation and warranty, make sure your dealer can service the computer locally. If he has to wait for the manufacturer to return a new part to replace whatever's defective, your computer could be tied up for weeks.

A printer: Your printer determines how good your business looks, so buy a laser printer. Serviceable offerings, such as the Brother HL-630, are available for as little as $400. At the top of the line, the Hewlett-Packard LaserJet 4-Plus (about $1,450) gives your work a professional mien while churning out 12 pages a minute. What's more, H-P printers have an enviable reputation for durability.

The laser printer will take care of your important correspondence or documents. But you may want to consider adding a second printer to your desktop. If you use lots of forms, such as shipping orders, or lots of mailing labels, you'll want a dot-matrix printer. Dot-matrix machines are slower than laser jets, but like typewriters, they actually make an impact on the page, allowing for multiple copies. If you want to add pizzazz to your reports, proposals, and presentations, look for a color ink-jet printer, which can produce text and graphics with near-laser quality at an affordable price. The Hewlett-Packard DeskJet 660, Canon BJC-6000, and Epson Stylus 720 are all good choices, with prices ranging from $450 to $600--as opposed to color laser printers, which cost thousands of dollars.

A modem: This is your electronic connection to the outside world. It's the key to electronic mail, online research, stock market news, the Internet, and your computer at headquarters. Many PCs come with internal fax modems that operate at 14,400 bits per second (bps). If you have one, there's no need to buy another.

If your PC doesn't have a modem, however, or if you're stuck with an old 2,400-bps model, buy a new 28,800-bps external modem. An external modem is easier to install and monitor than an internal version, and it's easy to reset when things go haywire. Most online services aren't fully equipped for 28,800-bps operations today, but they will be within a few months--and having bought the best technology you can afford, you'll be ready.

A fax machine: The fax modems that come installed in many home PCs these days are great for sending documents created on your computer--but they're useless if you want to attach an article, proposal, price list, or report created by someone else. You can buy a scanner to solve this problem, but scanners are more expensive than fax machines, and hard to install and operate. Unless you need a scanner to add graphics to your documents, buy a stand-alone fax.

Fax machines that use thermal paper rolls cost as little as $300. You'll want one with an automatic paper cutter and a feeder tray that handles ten sheets or more of paper. Plain-paper fax machines are more expensive, at $500 to $1,000, but they use cheap copy paper and produce documents that won't curl up or fade. They can also double as light-duty office copiers. In the past month or so, manufacturers have come up with multipurpose fax machines that can triple up as printer, copier, and scanner. While these may seem tempting, check out the print quality and speed carefully before you commit, and remember that a jack-of-all-trades is usually master of none.

INFRASTRUCTURE

Before you set everything up, make sure your home has the basic support systems an office requires. What works for a single person or a family won't necessarily work for a business.

Phone lines: You'll discover pretty quickly that it's hard to squeeze personal and business voice calls, data, and fax traffic and the demands of a family (teenagers have exceptionally high connect-time requirements) onto a single phone line. Unless you're a masochist, you'll route your PC communications through a second line.

Many newer homes are already wired for two lines, although all you see is one jack in each room (it's designed for a two-line phone). Making the second line useful is a three-step process. First, call the phone company and request that they activate your unused line. Second, spend a couple of bucks at the local Radio Shack on a gadget called a three-way splitter. Third, plug the splitter into your wall jack. This turns it into three jacks--one for each line, and one that gives you access to both lines. Now you have two phone lines that can handle four devices: I wire my answering machine and a two-line phone into one jack, my fax into another, and my modem into the third.

In older homes, getting a second line installed involves more work. Ma Bell will bring the line to the junction box in your home, but it's up to you to get it from there to your office. You can try to do it yourself (good luck) or you can hire an electrician, a private phone installer, or the phone company itself. Phone companies charge $80 to $100 an hour for the work, but their technicians are knowledgeable, efficient, and likely to do the job right the first time.

Electricity: If you're using a PC, monitor, printer, modem, answering machine, fax, copier, and a lamp or two, you'll need enough outlets and juice to power them all at once. But most homes and apartments built before the 1960s weren't designed with the electrical demands of the 1990s in mind. Before you set up your equipment, check with an electrician to make sure that the circuits in your room have enough capacity--particularly if you're using a laser printer, which has heating elements that draw extra current.

I found this out the hard way ten years ago, when we bought an older house that had a beautifully finished basement office. The office wasn't heated, but I happily invested $30 in a space heater and considered myself lucky to have the room. On the first cold day I discovered that the heater wouldn't coexist with my laser printer--the combination kept tripping the circuit breakers. Until we moved seven years later, I had to turn off the heat every time I wanted to print something.

If there isn't enough capacity in your home, adding a circuit may be well worth the money. If you're finishing off a basement, talk to your electrician before the dry wall goes up. Make sure there are enough circuits to support the equipment you plan to install. And ask him to mount your workstation outlets just above desk level--even though you're at home, there is something undignified about crawling around on the floor every time you want to plug something in.

Finally, buy an uninterruptible power supply. The UPS, as it's known in the trade, is a battery backup unit and surge suppressor, costing between $125 and $200, that stands between the wall outlet and your computer or power strip. Should the electricity fail, the battery takes over and provides just enough power for you to shut down your system safely. Outages can scramble your files and trash your hard drive, and the surge that occurs when the power returns can ruin delicate components in your PC. Just don't plug everything into your UPS--the more equipment it runs, the shorter its battery life.

ERGONOMICS

Far too many offices are ergonomic nightmares. The result: backaches, headaches, eyestrain, repetitive stress injury, and chronic annoyance. Money spent on a healthy work environment will be repaid a thousand times. The key elements are the right workstation, a good chair, and proper lighting.

Twenty years ago, almost no one outside the meatpacking industry had heard of repetitive stress injury--the cumulative damage to muscles, tendons, and nerves caused by thousands of small, repetitive movements. But now that millions of people spend the better part of their day pecking away at computers, RSI has become one of the great disablers of the 1990s. A few years back, when I was spending eight to ten hours a day in front of a computer, I had a frightening bout with carpal tunnel syndrome, a type of RSI that affects the nerves of the arm and hand. For months I was in constant pain, and my fingers were so weak that I couldn't turn a key in a lock. Luckily, I escaped without surgery. A few weeks of vacation sans computer, some cortisone shots, and--most important--a change in my work environment did the trick. But I could have easily avoided the hassle in the first place.

Rule One: Get a workstation or computer desk that allows you to put the keyboard and monitor of your PC at the proper height. Don't put your keyboard on a standard office desk--it's probably too high. Instead, bolt to the underside of your desk a keyboard tray whose height is adjustable. Ideally, your forearms should be parallel to the floor when you type, and your wrists should not be bent. The monitor should be at eye level or slightly below, so that you don't have to bend your neck back to read the screen. Your workstation should also be deep enough for you to move the monitor backward and forward until you find the optimum viewing distance.

If you have the space, go for an L-shaped unit that spans two walls and houses your computer in the corner, which will help eliminate screen glare from windows. If your space is minimal, look for a small workstation with wheels, so you can move the computer from room to room or store it out of sight. But steer clear of hutch-style units popular in low-end office supply houses and do-it-yourself centers--most aren't big enough to hold all your equipment, or deep enough to keep you at the proper distance from your monitor.

You can buy perfectly acceptable workstations from an office supply warehouse for as little as $50. You can also spend hundreds of dollars buying laminated furniture from a chic office design boutique. Or, like my friend, you can pay a carpenter a fortune to build you a custom setup.

Or, like me, you can build a computer desk yourself. I've never been burdened with a rigorous sense of aesthetics, so I made a workstation from a wooden door that I picked up at the local lumberyard. I propped the thing up on a couple of low hand-me-down bookcases, and mounted a Rubbermaid sliding keyboard drawer (about $25) on the underside of the desk. It's cheap, and it's ugly, but it provides plenty of room for my monitor, a pair of speakers, a telephone, an answering machine, two printers, two modems, and an assortment of other gizmos. Some year I may even get around to painting it.

Rule Two: Find the right chair. This is the one place where pennies pinched can pinch back. Unfortunately, there's no such thing as an ideal chair because there's no such thing as an ideal body. The best you can do is find a chair that fits yours. The height of the seat should be adjustable, so that your arms are at a safe angle when you type and your feet are flat on the floor. You should also be able to adjust the height of the seat back and the degree of lumbar support. If the chair has arms, their height and width should be adjustable too.

This shouldn't be difficult, but I've discovered a nasty little secret on furniture shopping trips. The "average" chair is designed for the "average" office worker, who must be a waif about 5 feet 5 inches tall. If you're a lot taller or a lot wider, or both, you may have to look hard for a chair that's high enough or wide enough for you. You may also have to look in upscale furniture stores or catalogues. Cheap new chairs are cheap for a reason--they fall apart. Large corporations investing for the long run often pay $400 to $600 for office chairs that are comfortable and made to last long after they've been depreciated.

That's why you can often find a good chair at a reasonable price in a used office furniture store. These dusty warehouses are often subsidiaries of large office equipment dealers, who use them as outlets for trade-ins or purchases from corporate customers who have redecorated, moved, or gone out of business. Enjoy yourself browsing, but remember that bargain hunters can't be slaves to fashion. A few years ago I found a wonderful heavy-duty office chair that fit me perfectly. It was in mint condition and cost a mere $75. It never occurred to me that there might be a relationship between the fire-sale price and the chair's hideous orange upholstery and trim. My wife gagged when she saw it, and the kids still make fun of it. But they fight over who gets to sit in it.

Rule Three: Treat your eyes well. It's taxing enough to stare at the equivalent of a dimly glowing light bulb (your computer screen) and ask your brain to make sense of the information that's supposed to be there. It's even harder when that information is scrambled by glare from overhead lights and reflections from windows. No wonder eyestrain, headaches, and stress are so common among today's office workers. In your own office, where you're the boss and most important employee, you can do something about it.

For starters, try to put your monitor in a corner where it won't catch reflections from any windows. If that's not possible, put the monitor at a right angle to the window, so that the light hits it from the side. If you must sit with a window directly behind you, angle your desk a few degrees to the left or right to reduce the glare. An antiglare filter can also help. Many ergonomics experts recommend the kind that fits inside the frame of your monitor and presses directly against the screen.

Avoid the temptation to make any overhead lights too bright. You need less light to read off your PC monitor than you do to read traditional sources of information--papers and books. Since most office work involves a mixture of the two, reduce the glare from overhead lights by tilting your monitor down slightly, or by installing a hood as an awning for your screen. Putting a table lamp on your work station, slightly to one side of the monitor, can also help reduce eyestrain.

THE LAST HURDLE

That covers the easy part of setting up an office. Now the tough part: dealing with the kids. If you have one computer in the house, your kids will want to use it. All the time. Every minute you're not there. They'll peek through the door and whisper, "When do ya think the geezer'll get off the thing?"

Of course you want to encourage computer literacy. But one day you'll turn on the machine and discover that none of your software works, because the kids have reconfigured it to play network Doom with their virtual friends in Tasmania.

There are three ways to deal with this issue--set up complicated rules, fight constantly, or give in. I gave in years ago and got the boys their own machine. When we finished the basement in our new house, I set up our computers on opposite sides of a common wall, with a passthrough for cables that let us share printers and a modem. The boys pay half the cost of upgrades and new gadgets. In the latest motherboard swap, their machine became faster and meaner than mine. So instead of being a high-tech magnet, my computer is a museum relic. Now the lads tiptoe past the office door and murmur, "Poor old Dad. His video board's too slow."

I'm delighted.