03 Mar Downsizing Your Home Can Save You Money
When we help clients with budgeting, one item consistently stands out as a major expense: housing. It is not just the mortgage cost, but also the insurance, utilities, HOA fees, maintenance, and taxes. The rule of thumb is one’s housing costs should not exceed about 28% of monthly gross income but for many people, it is even greater than this. While downsizing was previously associated with retirees, it is also becoming a more popular move for a growing number of hard-working, money-smart homeowners.
Reducing the Mortgage Payments
A smaller, lower-priced home should result in reduced monthly payments and less interest paid over the life of your loan. The money that you save in mortgage payments can be redirected towards student loan debt, retirement, or college savings for your children!
Lowering Real Estate Taxes
Real estate taxes are often the next largest expense for homeowners, and, unlike the mortgage payment, they never go away; they only increase over time. Downsizing your home is an easy way to minimize real estate taxes. Simply moving from a 2500-square-foot home (the average size in 2019) to a 1,500-square-foot home (the average home size in 1975) may lower your taxes by 40% or more.
Like real estate taxes, homeowner’s (and flood) insurance costs are directly tied to the value of your home. Downsizing to a lower-priced house will save you money on these annual bills as well.
The location of your primary residence can have a big impact on the cost of living from groceries, gasoline, car insurance, commuting, to real estate taxes and income taxes, and HOA fees. If you are one of the new virtual workers, this may be the time to transition to a state that is more economically friendly. Do some research and see if this can work for you.
Cut the Heating and Cooling Costs
The cost of utilities is another big bill that is easy to downsize when you move to a smaller place. If you have got less space to heat or cool, you should end up with more money in your pocket at the end of the month. It’s simple math.
Reducing the Hidden Maintenance Costs
Over the long term, less space to maintain translates into less money spent. If your expenses currently include pool maintenance, cleaning crew, landscaping, snow plowing, and periodic painting, think how much you might save with a smaller, simpler home. This is even more keenly felt on the big-ticket repairs that occur sporadically like a new roof, HVAC system(s), etc.
Although you may feel like you need extra space for your teenagers now, will you need the finished basement and extra bedrooms when they leave for college? Reducing the size of the home now can save you money for many years to come.
Remove the Clutter
Before you dismiss this idea outright, contemplate the amount of extra “stuff” that you have that you do not need. Old clothes, books, outgrown toys, un-used family treasures can all be donated or even sold for extra cash. If you remove all the clutter you may find that you just don’t need as much space.