February 24, 2015 by Jeff Lowen
Downsizing your lifestyle and moving into a smaller home is most commonly associated with empty-nesters and retirees looking for smaller spaces after the kids have moved out, but it’s also becoming a more popular move for a growing number of hard-working, money-smart homeowners. It’s also a move that makes a lot of financial sense. It’s import to weigh all the facts and make a good decision for you and your own, unique situation.
From a business perspective, the whole concept of downsizing is financial. Companies close facilities, shed business lines and lay off workers in order to save money. When they do, Wall Street cheers and stock prices rise because lower expenses lead to bigger profits. The exact same thing occurs, on a smaller and more personal scale, when you downsize your house. Albeit, laying off the kids or spouse, of course…
Show Me The Money! a.k.a. Chasing the Savings
Soaring home prices, soaring energy prices and high gasoline prices all add to the cost of living. As a result, the financial benefits of moving to a smaller place are numerous, and well worth exploring. Sure, if you have the cash a bigger house is nice – but what if all that money you saved took you and your family to Hawaii for a week? Or perhaps a better opportunity to impact the world in a positive way with your church or favorite charitable organization.
Reducing the Mortgage Payments
The monthly mortgage payment is generally the largest single expense consumers face. It routinely accounts for 30% or more of their gross income – often accounting for 50% of net income. Downsizing your house can have a dramatic and direct effect on mortgage expenses. At the very least, it can result in a significant reduction in your monthly expenditures, freeing up cash flow and massive savings in interest over the term of your mortgage.
If you make the right move, you might be able to trade in your house and use the profit from the sale to purchase your next home in cash. If you are really in great shape financially, you might even pay off the new home and have tax-free profits from the sale of your old house left over to invest.
And Then There’s Taxes
Real estate taxes are generally the next largest expense for homeowners and, unlike the mortgage payment, they never go away. Downsizing your home is an easy way to minimize real estate taxes. Simply moving from a 3,000-square-foot home to a 1,500-square-foot home may cut your taxes by half.
The site of your primary residence can have a big impact on the cost of groceries, gasoline, car insurance, commuting and more. A new location can result in a shorter trip to work and may, if you move from the suburbs to the city, enable you to get rid of your car altogether.
Lowering the Cost of Utilities and Maintenance
The cost of utilities is another big bill that’s easy to downsize if you move to a smaller place. If you’ve got less space to heat or cool, you should end up with more money in your pocket at the end of the month.
Over the long term, less space to maintain translates into less money spent. If you move to a smaller place, you can cancel the landscaping service and the pool boy, paint fewer rooms and resurface a smaller driveway. When things get old, dirty or need to be redone or replaced, you’ll save money by fixing the smaller roof, buying one furnace instead of two and laying 1,000 square feet of carpet instead of 3,000 square feet.
Wait! There’s More
When you move to your smaller place, reducing your expenses is just one of the opportunities that will become available to you. The other part depends on what you do with the money that you save. Just saving $500 per month for the next 10 years turns in to $6,000 per year. That’s $60,000 over the course of a decade, even if you just tuck the money under your pillow. Of course, if your pillow is your bank, don’t keep the green there too long; you’ll lose 3-5% per year with cost of living, inflation, etc.
There’s More To The Story Than Money
In addition to substantial cost savings, moving to a smaller place has other benefits. For example, you’re likely to have substantially less work to do around the house. I can clean my house, no matter how dirty, in 45 minutes flat, spotless! With your newly found time, you can start a hobby, visit friends, travel or simply chill instead of spending hours cleaning, improving, or fixing your too-big house.
Don’t Forget About The Emotional
You don’t need to check them at the door, but don’t discount the fact that there’s an emotional impact of moving, let alone downsizing and it can be challenging. Especially, if you’ve lived in the your house for a lengthy period of time. I’ve downsized very successfully myself – a little overkill for some – and I’ll be the first to recognize there’s an element of surprise when it’s time to toss that old coffee maker that’s been growing cob webs in the attic.
Think First, Act After
Before you trade your palace for a condo, consider all of the angles. Carpenters say to “measure twice, cut once”. According to the National Association of Home Builders, the average home size in the United States was 1,400 square feet in 1970 and nearly twice that by 2004, coming in at 2,330 square feet. So, think about your current home: How many rooms to do you have? How many of those rooms do you actually use? How much time do you spend in that basement that you have to pay to heat and cool? But before you call the movers, remember think through your reasons for moving. Is a new lifestyle right for you? Can you live in a place where the neighbors are close? If the condo doesn’t allow pets, will that bother you? Condo and Homeowner Association rules and regs can be interesting!
Like any major lifestyle decision, planning is the key to success. Plan first, research your plan, then move! It just takes a little bit of strategy to make sure that you are doing the right thing and that you’ll be happy and excited about it after the fact.