A Thrifty Person’s Guide to Downsizing
Moving to a smaller home could be a great way to save money, but there are lots of factors to consider beside pure square footage!
When you read the word “downsizing,” you probably think of the 2017 Alexander Payne film. It’s certainly the first thing that comes up when you Google the term.
But “downsizing” doesn’t just refer to a mid-budget film in which Matt Damon and his wife, Kristen Wiig, decide to go through a shrinking procedure in order to simplify their lives. It’s also a way you could cut down on some clutter and costs in your own life as well. And you don’t even need to shrink down to do it!
So what exactly is downsizing, why might you do it, and how might you do it? Let’s find out!
What is downsizing?
When people other than director Alexander Payne talk about downsizing, they’re likely referring to real estate, though they could also be talking about selling off some of their possessions.
“Downsizing can be an effective way to reduce expenses, thus allowing you to potentially build your savings,” explained Associate Financial Planner Anna Keisler. “Downsizing generally means moving to a smaller and less expensive home in order to have a lower monthly mortgage payment. There are other expenses that should decrease when you move to a smaller home as well, such as electricity, gas, housekeeping, maintenance, etc.”
Reasons to downsize.
You don’t really need an excuse for wanting more money in your pocket. But there are quite a few scenarios that could make downsizing particularly appealing.
“If all your kids have moved out and you no longer need the extra space, it may be time to consider downsizing. Think about your future and if that extra space will still be utilized. A larger home requires more upkeep and if you aren’t actively using the space, you can save money by downsizing to a smaller space that fits your current needs.
“You may want to downsize for the simple fact that a lower mortgage payment will take a little bit of burden off your shoulders. With a larger home comes more financial responsibilities. If you do decide to sell, you can use that money to completely fund a new, smaller home. No longer will you have to worry about the responsibility of paying a mortgage.
“If you’re nearing retirement age, consider the perks of downsizing. Whether that money is for traveling or daily expenses, having a smaller mortgage payment will allow you to allocate more money towards your retirement fund so you can live comfortably, when the time comes.
“Whether it’s racked up credit card debt or student loan debt, it may seem impossible to take control of. Downsizing and having a more affordable mortgage can help you put more money towards your debt in order to pay it off sooner than you thought, and take some of the weight off your shoulders.”
How to downsize.
So you’ve decided to downsize. While there may be some general tips that will apply to anyone, only you know the specifics of your unique situation.
“There is no one-size-fits-all approach to downsizing any living situation,” advised Deborah Sweeney (@deborahsweeney), CEO of MyCorporation.com (@mycorporation). “It would be impossible for me to advise that one household downsizes in a manner that is the exact same for another household.
“My advice is to examine your existing budget and determine which items you can spend less on for a monthly basis. Often, purchases you don’t think are all that expensive—like dining out—are the ones that quickly add up. These can be cut back on, as needed, for more cost-effective options like meal prep and what you save from not dining out can go into savings.”
You could even find that downsizing to a smaller place might not save as much money as you’d think it would.
“Before you decide to opt for the lower mortgage, consider all the underlying costs you may run into,” suggested Ferrandi. “In order for your current home to sell on the market, you may need to do some repairs or make some updates, which could cost you a good chunk of change. Or maybe the furniture at your current home won’t fit into the smaller home and you’ll have to purchase new stuff. These are just a couple of the cost factors you may want to consider prior to making the commitment.”
You’ll also need to figure out what you’re getting rid of, and whether you need to replace it.
“Downsizing is a perfect opportunity for you to get rid of any unnecessary clutter or belongings,” advised Ferrandi. “Be realistic about what you need and what you don’t. With a smaller space, you may not be able to bring everything from your current property. This is a great opportunity for you to organize all of your belongings accordingly. Get creative and be efficient in the way you store things so you can best utilize your new space.
“Plan out your new living space accordingly. With a smaller space, you will need to make sure all of the belongings you are planning to migrate over will fit without making it too crowded. If you’re looking to buy furniture, try going for more functional pieces that will better fit a small space.”
And there are a few things you should definitely not do if you’re looking to downsize in a way that saves money.
“Just because the house is smaller doesn’t mean it’s going to be less expensive,” warned Keisler. “Say you have a home in the suburbs and want to move to the most in-demand neighborhood of the city: your home may be smaller but it will likely also be more expensive. The increase in property taxes can also make the trade-off to a smaller home in a pricier area less economically beneficial.”
Downsizing can be a big decision. We aren’t downplaying that fact. But it might also be a good choice for you! To learn more about managing big financial decisions, check out these other posts and articles from OppLoans:
- Is Rent-to-Own a Good Way to Purchase a Home?
- Emergencies and Divorce: How to Plan For Worst-Case Scenarios
- How Much Money Do You Actually Need to Buy a House?
- Should You Get Life Insurance?
|Sacha Ferrandi is the Founder of Source Capital Funding (@sourcecapital) and is an expert in finance, entrepreneurship, and real estate. Source Capital Funding, Inc., is based in San Diego and operates across the United States.|
|Anna Keisler is a Financial Planning Associate with SG Financial Advisors in the Atlanta, GA area. When not assisting with financial planning, you can find her at the gym or trying new restaurants. She currently resides in the metro Atlanta area with her husband and two cats.|
|Deborah Sweeney (@deborahsweeney) is the CEO of MyCorporation.com (@mycorporation). MyCorporation is a leader in online legal filing services for entrepreneurs and businesses, providing start-up bundles that include corporation and LLC formation, registered agent, DBA, and trademark & copyright filing services. MyCorporation does all the work, making the business formation and maintenance quick and painless, so business owners can focus on what they do best.|