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