There may come a point when you no longer need a home with as much square footage as you once did, such as when your kids grow up and move out. Or there may come a time when you struggle to keep up with your housing costs, like if you’re footing the bill for your kids’ college simultaneously or your income takes a dip.
Either way, downsizing can be a tempting move when money is tight or you’re looking for a way to save. When you downsize, you’ll often get a chance to lower your mortgage costs, property taxes, and homeowners insurance. And since it takes less money to heat and cool a smaller space, you’ll shrink your utility bills, too. But here are a few less obvious ways that downsizing might save you money in the long run.
1. You won't be tempted to buy as many things
The appeal of buying large pieces of art, antiques, or even electronics tends to wane when you don’t have the space to store or display those items. The beauty of downsizing is that it might effectively force you to cut back on spending in ways not directly related to your home. Not only that, but if you downsize, you may have no choice but to sell some items that won’t fit in your new space, thereby banking a little extra money right away.
2. You may not spend as much on home improvements
The less space you have to maintain, the less money you’re apt to sink into renovations over time. Imagine you have a couple of small bedrooms with carpets that have become worn. It’ll cost less to replace them than it would for two oversized bedrooms. The same logic applies throughout your home -- upgrading a small kitchen will cost less than updating a large one, and finishing a tiny basement won’t be as expensive as finishing a space three times bigger.
3. You may adopt a more frugal approach to spending in general
Once you learn to live with less space, you may start to realize that you’re capable of living on less in general. The high-end clothing you used to buy? Maybe you’ll shop more judiciously and only buy items needed for work (and at a discount to boot). The fancy electronics you enjoy upgrading to? You may realize there’s no need to replace your laptop or phone if these items currently work just fine.
Of course, you can argue that if you downsize your home, you may be more inclined to increase your spending elsewhere since you’ll have all that freed-up cash. But maybe, just maybe, you won’t. Also, having less space could inspire you to take a quality over quantity approach -- buying two long-lasting pairs of jeans instead of 12 and saving money (and hassle) that way.
What can extra money do for you?
Saving money on housing opens the door to other potentially lucrative opportunities. For example, if your mortgage payment decreases substantially, it could allow you to buy an investment property that generates regular income for you. Or it could make it possible for you to build a diverse portfolio of stocks, bonds, and REITs. Therefore, if you’re willing to part with some square footage, it pays to see just how much downsizing can improve your finances, both in the near term as well as in the long run.
That said, if you’re going to downsize for the express purpose of boosting your savings, map out a clear plan for doing so. Decide how much cash you’re hoping to eke out on a monthly basis following your move and where it will go (savings account, brokerage account, somewhere else -- the choice is yours). That way, you’re more likely to really benefit from your decision. Or, to put it another way, if you don’t have a solid plan for how you’ll allocate your money post-downsizing, you may find that you wind up giving up living space but not really improving your finances -- and that’s kind of a waste.