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 over extends 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.
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.
You don?t want to downsize only to find yourself not realizing any net savings so think carefully about your needs. Consider these ways to maximize the impact on your budget when downsizing:
- Consider moving to a smaller space. Downsizing from a 2,500 square 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.
- With high gas prices, tolls and the wear and tear on a car you could easily be spending hundreds of dollars a month on your commute. Moving closer to your work could result in big savings and improve the quality of your life as well.
- Moving even a fraction of a mile away into a less expensive neighborhood can allow you to stay in the same area, but reduce your housing costs. In many areas there are million dollar homes in neighborhoods in proximity to low and middle income neighborhoods.
- If you are paying private school tuition for your children consider the savings of moving to an address in a better school district. Private school tuition can range from $5,000 to $20,000 per student so the savings of attending a public school can be substantial.
- The cost of living in varies greatly from area to area. Factored into cost of living is utilities, food, housing, and so forth. Moving to a place with a lower cost of living can dramatically decrease your overall expenses. You can do research using a cost of living calculator. If moving would require you to get a new job, remember that lower cost areas generally have lower paying jobs as well.
If you are considering downsizing, make sure you downsize in a way that nets you the biggest possible savings. For example, if you are commuting an hour into Phoenix, AZ each day, maybe you want to move to a smaller, less expensive home, and also move into the city to reduce your commuting costs. By doing this, you will maximize your savings by reducing housing expenses, utilities and gas all in one move! Of course, you?ll want to take into account any additional expenses such as local storage and parking costs.
If your family is tied to a specific community?schools, pediatrician, clubs and church?you might opt to downsize by moving to a lower cost home in the same area and school district. Sometimes just moving to the next neighborhood over can result in big savings.
Downsizing might seem like a big step to take?and it is?but it may be just the thing to get you back on track financially. Just make sure you think it through and carefully plan to maximize your net savings.