Downsizing: A Small Step Backward with Big Financial Benefits

You might be surprised at how downsizing can help your finances. And reduce your stress levels.

Most people are obsessed with upgrading and adding more “stuff” to their lives, according to NPR's Michele Norris. It seems everyone is looking for bigger houses, fancier cars and better stuff. In reality, if having those things overextends you financially, they will be difficult to enjoy. If you are living beyond your means you likely feel stressed, anxious, or even fearful at times.

Is Downsizing a Good Idea?

While downsizing might seem counterproductive to your dreams it can actually be an important financial step. One step back that sets you up to take some giant steps forward. Downsizing can allow you the financial breathing room to pay off high-interest debt, create an emergency savings fund, begin to save for retirement, and simply get your feet back underneath you.

If you are thinking about downsizing it's time to get practical. If you have three kids, it isn't feasible to look at downsizing to a one bedroom. If you move too far away from your job, gas might eat away any savings you make on housing.

Maximize the Benefits of Downsizing

You don't want to downsize only to find yourself not realizing any net savings so think carefully about your needs. Also, acknowledge that not every strategy will work for you. If you can't afford to pay for a big move, downsizing your space might not make sense. There are other situations that might not work well with downsizing.

Consider these ways to maximize the impact on your budget when downsizing:

Move to a smaller space

Downsizing from a 2,500-square-foot house to a condo or 1,500-square-foot house could save a considerable amount on rent and utilities. Be sure to factor in any additional expenses like condo fees.

I recently moved from a rented house into an apartment. Because I didn't have a lot of stuff to begin with, I didn't have much to get rid of. What I did get rid of was relatively easy to unload—and I got a little cash for what I sold. My new situation has resulted in:

  • $150 a month in utility savings in my much smaller space
  • $95 in internet costs since my apartment comes with internet
  • $250 a month in yard care costs since I no longer have to cover those expenses

That's close to $500 a month—$6,000 a year—just for making that downsizing move.

Clear the clutter

Sometimes it's less about the size of your living space and more about how much stuff you have. My smaller space forces me to think before I buy new stuff. However, even before moving, I tried to avoid buying extra stuff. Having a lot of things just stresses me out.

Sell some of your stuff. Then make a rule that you won't buy something new unless you get rid of something to clear up space. This will force you to reconsider purchases before you move forward and spend money.

You can also donate and potentially get a tax deduction for the value of the donated items.

Start planning your meals

Simply planning my meals has helped me downsize how much is in my fridge—and reduce how much food goes to waste. I spend less on groceries because I'm intentional about what I eat. I plan ahead to have leftovers for lunches or a second night.

In fact, I don't even need to cut coupons or take up time with shopping sales. Just being realistic about my meal planning has made a huge difference and saves me a couple hundred dollars a month.

Live someplace walkable

When downsizing to a new living situation, consider walkability. When changing locations, take into account cheap public transit, as well as whether you can walk or bike. I live in an area that is somewhat walkable. I can walk to a little grocery, get to a cute lunch spot, and access walking paths for recreation. I'm also within biking distance of my downtown entertainment preferences.

This saves me money on gas, and it means I live a healthier lifestyle.

Bottom line

Downsizing can help your finances, but you need to have a plan to stick with your new lifestyle. Consider steps you can take to ensure that you develop new habits as you downsize.

7 thoughts on “Downsizing: A Small Step Backward with Big Financial Benefits”

  1. Free Money Minute

    Another way to look at it is not upsizing until you absolutely have to. Done replace your car until it completely dies or needs to be replaced. Don’t get a larger house until you have to many people to live reasonably, etc.


    My wife has discussed getting a much larger house in a couple of years because she thinks the one we currently live in is a bit small. I think the size is just fine and enjoy the low mortgage payments. I would also rather have the money we would be spending on a giant house available to spend on things we love to do. We are just going to have to sit down and discuss what is more important to us in life… A large house or getting to go places and have fun.

    1. Miranda Marquit

      It’s all about the priorities. My husband was thinking bigger house, too, but when we got down to it, he realized he just didn’t like the flooring, which was becoming shabby. We also had a lot of useless clutter. As we prepared the house for new flooring (paid for out of pocket), we got rid of a lot of stuff. Now, with the new flooring and less clutter, we’re both much happier. And, like you, we’re both happier when we can spend our money on other things, rather than on making a house payment.

  3. Bryan@Fatwallet

    My wife and I were looking at getting a bigger house just after the housing crash. Then we talked about it, and decided just because we could afford a bigger house, doesn’t mean we needed one. In the end we decided to stay where we were, and sock more money away for vacations/retirement. 🙂

    1. Miranda Marquit

      The reality is that just because you CAN doesn’t mean you SHOULD 🙂 It’s all about where you want your money to go.

  4. Pretired Nick

    I love this article. We’re actually looking to downsize right now, since we realized we bought too much house. Home maintenance, property taxes, all of it just seems like waste now.


    Great article. I really like how you pointed out that downsizing does not automatically mean savings. My philosophy…Always Do the Math

Leave a Comment

Your email address will not be published. Required fields are marked *

you MUST enable javascript to be able to comment