How downsizing can improve your financial and overall quality of life

From spending and saving to investing and paying down debt, making important financial decisions is an inevitable part of adulthood, including in your Golden Years. And the key to making the right decisions is to be as informed as possible, which makes achieving a comfortable lifestyle a whole lot easier.

At one point or another, one of the most important financial, and often life-changing, decisions we all have to make is where to live – and in your Golden Years especially, this can be a very stressful decision. Depending on your situation, there can be a lot of emotional turmoil and uncertainty involved – on top of any financial stress that goes along with such a big transition. This is why so many people avoid actually making the decision to change their living arrangements, regardless of the financial burden their current situation may be causing them. They aren’t quite sure what to do or how to do it, so they avoid it altogether.

But the good news is that by being well-informed, you can be sure that you’ll make the right decision for your life and your finances.

Why you should consider downsizing

Regardless of your age, downsizing can offer a lot of financial and other benefits to your life. If you’re struggling to keep up with mortgage payments, it can alleviate that stress and increase your monthly cash flow. Even if you aren’t struggling, downsizing can free up even more cash that you can put toward retirement or use to do more of what you love.

Moving on and up in life does not mean buying a bigger, more expensive home. Buying and living within your means is the best way to achieve the lifestyle you desire, without causing yourself unnecessary financial stress. Downsizing can be a great way to get a fresh start — while saving you time, money and useless clutter.

There are a lot of benefits to downsizing — especially in your Golden Years when you’re on a fixed income. In fact, 42% of Americans say they plan to downsize in retirement. Moving to a smaller home or community is an ideal way to lower your monthly living expenses and alleviate the stress of your overall responsibilities (house work, upkeep etc.). It can allow you to travel more and create more time for yourself and the things you enjoy in life.

And for seniors, downsizing to a smaller space or retirement community can also reduce feelings of loneliness and give you a greater sense of stability and security.

A few advantages to downsizing:

It gives you an opportunity to clear out the clutter from your home.
Moving to a smaller home can lower utility and other bills, saving you money both now and down the road.
A smaller home/property means less maintenance, cleaning and upkeep.
If your current home is paid off, the equity can be a valuable addition to your assets. (You may even be able to sell your current home and buy a smaller home without taking on another mortgage.)

Whether you decide to rent or buy, and depending on where you are in life, here are a few options for downsizing:

Move to a smaller house: A less expensive home means smaller mortgage payments and less upkeep costs.
Move to a more affordable apartment, condo or townhome: Smaller monthly payments, less upkeep and greater sense of community.
Move to a community living/retirement community: Moving into an independent living community is a great option if you want to maintain your independence in a smaller yet more accessible home while enjoying the perks of community living.
Move to an assisted living home: If you need a little help, this can be a great way to save money, feel more secure and be part of a community.
Move in with family or a trusted friend: This can be temporary while you figure out your plan or a more long-term move, depending on your situation. Either way, it will save you money, make you feel more secure and reduce feelings of loneliness.

How to downsize the right way

Downsizing can be a great option for anyone, not just seniors. But before you make the move, there are a few things you need to do and consider to make sure it’s the right move.

Think long term: How much space will you need both now and down the road? For example, do you need space for a home office? Considering your current and long-term needs will help you choose a home that’s the right size and that you can stay in for a while, if not forever.
Keep it practical: How much of all that stuff that’s packed in your house do you really need? Downsizing is going to require you to clear out the clutter and unnecessary stuff you’ve been carrying around for years. It may require doing a few passes, but it’s a great way to make some cash on the stuff you don’t need and have space in the new place for the important things.
Hidden costs: Before you jump into downsizing, you need to make sure that the place you choose is actually going to save you money in the long run. Sure, the monthly mortgage payments and upkeep costs will probably be lower, but there are other one-time and recurring expenses you need to consider any time you move. Here are just a few:
- Does your home need any repairs or updates to get it move-in ready for a buyer?
- Are there HOA fees at the new place and how much do they cost?
- How much will it cost you to move?
- How much are property taxes at the new home?
- Will you need a storage unit when you downsize?
Think big picture: A lot of people don’t want to downsize, because they like having a big space for family to gather. But how is that impacting your financial life both now and down the road? Downsizing may mean that the family gathers in just one or two rooms, but in the grand scheme of things, so what? The last thing you want to do is run out of money in retirement. So if downsizing will give you more financial freedom and security, then it’s worth it.
Take the emotions out of it: It’s very common to be attached to things. We all fear change in some way, but you need to try to take the fear and emotions out of your decision. Think about the practical benefits that downsizing will have on your life. You’ll save money, reduce your responsibilities and have a greater sense of freedom overall.

Other financial benefits to downsizing

We’ve already mentioned a few financial advantages to downsizing — at any point in life — like saving on monthly payments and reducing costs to maintain the home. But there are also bigger long-term benefits that it can provide for your financial life:

Paying down debt: Having smaller monthly mortgage/rent payments means more available cash to put toward your debt. This will allow you to pay off what you owe much faster, which will alleviate the burden of monthly debt payments and give you more financial stability in the long run. This includes credit cards, student loans, your mortgage and more.
Boost your retirement fund: Having more cash available each month, and eliminating your debt payments, will allow you to really boost your retirement savings. If you’re younger, you’ll have more time to create a larger nest egg and retire when you’re ready. If you’re older, having less money going out each month will free up more funds for things you love to do — like travel.

Bottom line: downsizing can not only benefit you financially, but it can also give you more freedom in life to do the things you love. Plus, creating a more stable and secure financial life will give you more choices both now and down the road.

Alex ThomasJanuary 18, 2020