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.
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.