While downsizing has many benefits, it is important to know when it is the right time to downsize your living space. Chances are that if you are thinking about downsizing, you have more space than you need or your larger space has presented more financial risks than you had imagined. If you have kids that have moved out, downsizing is a great way for you to cut down on the extra space that was once occupied.
The best time to downsize will depend on your personal circumstances. Whether you are retired, looking for a smaller space or trying to find something cheaper with less maintenance, downsizing will allow you to feel more comfortable in your living space.
Downsizing can potentially make your life simpler and less stressful, but it is important to know that smaller does not always mean more cost-efficient and downsizing can have its disadvantages. If you are interested in learning more about when you should downsize, refer to the sections below.
Two groups that consider downsizing the most are retirees and senior citizens. Their ages typically range in the 60s and above. If you fall into this category, downsizing is an ideal option because in many cases you no longer have the need for so much space. Utilities and other expenses can be costly for one or two people living in a large home.
If you are newly retired, you should also be considering how much money you will be receiving from your retirement check. In many cases, the amount will be significantly lower than what you are used to. If you are retired or approaching retirement, making your money last can become a huge concern.
While downsizing has financial advantages, it can also be an emotional decision. This is because it may not always be your decision to downsize when you can no longer afford the payments that you had in the past. This is why downsizing is a good decision if you are struggling financially. It can give you more financial room for other things, such as vacations and care for grandchildren.
Other determining factors include your age, as well as your physical features. If you have a two-story home and have mobility issues, moving into a space with one level would be a practical choice.
By selling your home, you will typically cut your housing costs and have extra money available for other luxuries, but this is not always the case. You should make sure that when you are downsizing, you are doing it in a way that will save you money.
As a retiree, you can rent your home out and move into a smaller space. This will help you save money, by collecting money from renters. Along with you knowing that your apartment is in good hands, this alternative allows you to be more flexible in choosing a new space.
If you want to live in an upscale apartment or vacation around the world, renting out your space will give you a new form of income. If you do decide to rent out your home, it is important to check local ordinances in your area first.
Consider the Space
Another important factor in choosing when it is time to downsize involves how much space you currently have and whether or not downsizing is necessary.
How much space you have in your home can influence your decision to downsize, especially if there are not many people living in your home. You may not be a retiree or a senior citizen, but if you have children that have moved out, it is not always smart to keep paying for unused space. If you are an empty-nester, you should question whether or not you need the extra space.
If the answer is yes, then look into ways to utilize it for your benefit. If the answer is no, make sure you are factoring in your family dynamic and how often guests visit from out-of-town before deciding downsizing is the right decision.
If you are considering downsizing, it is important to know how much space is required in order for you to live comfortably. If you have a partner or spouse and own a lot of items, it is important to be reasonable with your decision. Downsizing can play a huge part in helping you save money, but if you are used to 3,000 square feet, a 400 square foot tiny house will not be enough for you and your partner.
Consider the Costs
Many people are living in homes they cannot afford. If you are living outside of your means, you are probably making sacrifices in your finances that you should not. It is important to know if the large home you are living in is worth the cost. Downsizing can give you freedom from unnecessary financial burdens.
Overspending on housing can be one of the quickest ways to fall into debt. By doing this, you make it harder on yourself to save money, leaving no room for unplanned expenses. Your mortgage, insurance and property taxes combined should not be over 30 percent of your take home pay each month. Downsizing allows you to free up some space within your budget. Note that if your combined expenses exceed 30 percent for a temporary time you can still manage to afford your monthly payments.
Lastly, it is important to consider maintenance and repair costs. It is common to spend between 1 percent and 4 percent of your property value on annual upkeep. You want to be sure that the percentage is at the lower end of the range. Paying 4 percent or over for maintenance can leave you feeling stressed financially. If you find yourself constantly paying more than you are comfortable with, downsizing will help fix that.
Even if your housing costs do not exceed 30 percent of your take home pay and your maintenance fees are minimal, it is still important to save money for unexpected expenses. If you are not saving money because of your housing payments, it is time to consider a new home that is smaller and more manageable.