Housing is one of the biggest expenses for most people. According to the most recent data from the Bureau of Labor Statistics, the average person spends $19,880 on housing each year.
Not only is the cost of housing increasing, so is the size of our homes. In fact, the average size of homes grew from 1,660 square feet in 1973 to 2,392 square feet in 2010, according to Census data. That’s an increase of nearly 70%!Moving to a smaller house can have a big impact on your bottom line. Less space means a smaller mortgage, fewer belongings, and cheaper utilities and repairs. Paring down your belongings and getting creative with storage space is the key to making it work.
Does It Make Sense To Downsize Your House?
Controlling home costs along with transportation and food expenses (the big three) will free up money to put toward your FI journey.
According to a study by the University of California Los Angeles (UCLA), most people are paying for more space than they use daily. Downsizing your home will allow you to maximize the space you’re paying for while freeing up funds you can use for investing.
Let’s look at an example. The median price per square foot is $123 according to recent estimates. If you live in a 2,500-square-foot home and you downsized to a 1,600-square-foot one, you will pocket $110,700 over the lifetime of the mortgage.
If you invest the difference in the stock market with an average annual return of 7%, you will have an extra $217,764 after 10 years. Using the 4% rule, this yields $8,711 per year that you can use to cover your costs when you reach FI.
This doesn’t even take into account the reduced cost of maintenance and utilities with less square footage. A smaller house needs less furniture and can help you control clutter.
When Should You Downsize Your House?
There is no right time to downsize your home but the sooner you do it, the sooner you can reap the financial benefits. If you don’t use all the space in your home, you’re losing money and delaying your Financial Independence.
Even if you plan to have kids, go with a smaller space than you think you need. Chances are you can make do without an extra room while they are still small. This will also help you control all the clutter that comes with having a new member of the family.
You need not wait until reaching FI to move to a smaller home. Make the move today and use the money you save to add to your portfolio and reach your target number that much faster.
How To Downsize Your Home Effectively And Save Money
The key to downsizing is finding a space that fits your needs. Going from a bigger to a smaller space can be a challenge since you will have to keep the things you need and get rid of those you don’t. Decluttering comes with an emotional cost but in the long run, it’s worth it to achieve your FI goals.
Get Rid Of What You Don’t Need
When you downsize, it’s important to purge your belongings. Not all of your possessions will fit in the new space. Focus on getting rid of anything that you don’t need or won’t fit in your new home.
Paring down your stuff can be difficult. When James Christensen and his wife downsized from 2,600 to 1,600 square feet, they faced a surprising amount of things that were tough to let go of. His best advice: prepare yourself emotionally to make difficult choices.
Clutter can cost you more than just space. Riley Adams, CPA from youngandtheinvested.com, and his wife moved and downsized their home by roughly a third. They had to go through all of their clothing, kitchen items, linens, and appliances and get rid of anything they hadn’t used in the last year.
Not only were they surprised by how much they could let go but they also saved money. The purge meant they wouldn’t need to rent an additional storage unit and ship it cross-country. This added savings of $1,100 to their bottom line.
There is a whole thread on the ChooseFI Facebook group on tips on how to shrink your space while working toward Financial Independence. Check out the full thread here.
Digitize Everything You Can
Having less space means less room for files, pictures, books, CDs, and other paper. ChooseFI group member Catherine Hudson, who uses a pseudonym for privacy, doesn’t buy physical books or CDs to save on space in her one-bedroom apartment.
As soon as a piece of paper crosses the threshold of your home, decide what to do with it. Recycle whatever you can, pay any bills, and scan anything you need to keep for your records.
If you have old printed photos, consider sending them to a service such as Legacybox to have them transferred to digital format.
Going digital will save space while still allowing you to enjoy your favorite music and books. If you love reading, get an e-reader and save space on your bookshelves.
Layout Is Everything
Not all square footage is created equal. When going from a larger home to a smaller abode, the layout is king. A 1,000-square-foot home can feel bigger than a 1,500-square-foot one if it flows better for your needs, according to Andrew Herrig from wealthynickel.com.
He downsized when he had kids to gain an additional bedroom while losing space in the master suite. Andrew recommends looking at functionality rather than the size of the house.
Lindsay Karloff Giroux found that knowing the layout of their new space helped them figure out what would fit realistically, and what wouldn’t. She asked herself, “What would I want our new space to look like?” and used that question to guide her decisions on what to purge.
Because she wanted a reading nook, but the space was tight, she kept her favorites that fit on a single shelf. She got rid of many books and bookshelves to create the space she envisioned.
Use Wall Space
Having less floor space means getting creative. ChooseFI group member Ashley Wenke uses wall space to extend her storage. She has hanging laundry baskets on the wall outside the two bedrooms and bathroom, which saves floor space.
Adding shelves and closed storage such as a tall cabinet with doors offers places to stow away your stuff. Korey Petersen solved her small apartment problems by focusing on ways to organize and hide her family’s belongings.
She uses a closed entertainment center in the living room for storage. In her son’s room, bookshelves on the wall preserve floor space. She added a vertical shelf in the closet with bins to store toys and clothes.
Focus On Multipurpose Storage
When you’re short on space, every piece of furniture needs to serve double or even triple duty. For example, having a storage ottoman gives you space to stash away blankets while doubling as an extra seat.
Scott Schorfheide found that customizing his home helped his family transition to a 1,150-square-foot ranch-style house. In their dining area, they built a bench with storage and a custom table that fits the space perfectly for their needs.
When buying furniture for her one-bedroom apartment, Catherine looked for multipurpose pieces. She has a dining table that converts to a coffee table and her couch is a sleeper sofa. This allows her to host people even in her smaller space.
Instead of having a separate formal dining room, consider getting a table that extends so you can still have people over. If you want ideas for fitting more into a small space, visit an Ikea store. You will find good examples of how to add more storage and functionality in limited spaces.
Utilize Dead Space
If you move to a smaller home, you will want to use all available space. Most times, you will encounter dead space such as a wall nook or an awkward room layout. Figure out a way to add functionality to this area and increase your storage.
This is what Scott did in his kitchen. By utilizing unused space for additional cabinetry, he could make room for the dishwasher. The new area also offers workable countertop space and functionality.
Do you have unused space above your kitchen cabinets or at the top of your closet? Add storage boxes or bins to fit more items. Space under beds, couches, and other furniture can also serve as storage.
Living in a smaller home means setting boundaries for what makes it over the threshold. With less storage, you’ll think twice before buying something just because it’s on sale.
Sara Katz found that having less storage helped her get rid of everything she didn’t need. Now she thinks twice before buying something new. This not only saves her money but also results in less clutter in the long run.
When you downsize your home, set boundaries to control the influx of stuff. For example, set a rule that you have to get rid of something if you bring in a new item. If you want a new sweater, donate one from your closet.
If you have kids, it’s important to get them on board. Toys and clutter have a way of multiplying with each child. Set boundaries such as a storage shelf or a dresser for their stuff. Once it’s full, have them get rid of items if they want to bring anything new into their space.
Find A Place For Everything
With less room for your stuff, small spaces can become easily cluttered. When you downsize your home, make sure everything has a place. Consider how you use things and store them in a way that’s convenient.
While it’s not always possible, try to find a home for everything close to where you use it. For example, find a place for your slow cooker in your kitchen instead of putting it on the top shelf of your closet. This will prevent you from leaving things out until you get around to taking them back to their storage place.
Make a habit of putting everything away right after you use it. If you bring a new item into your home, decide on a place to store it. If you can’t find anywhere that works, you may have to get rid of it or give up another item to make room.
Give Away Special Items
Some of the hardest items to get rid of when downsizing your home are those that hold special meaning. While the object itself may not be something you use, it may hold the memory of a loved one or remind us of a particular time in our lives.
Allow yourself to keep a few items that don’t take up too much space. Limit yourself to a small box that you can stash away in a cabinet or on the top shelf of your closet.
For everything else, consider giving it away to family and friends who would appreciate it. Cherie St. Cyr had trouble letting go of the things she had from her mother when she moved from her 1,100-square-foot house to a 600-square-foot apartment.
She wrote all of her nieces and nephews with a list of items she was giving away. She offered to box and ship whatever they wanted from the list and pay the postage. Finding a new home for items close to your heart can make it easier to give them away.
The Bottom Line
Downsizing your home can be a great way to save money and speed up your FI timeline. Since many people live in homes that are too large, moving to a smaller place that fits your needs better will also help you limit clutter.
Keeping your expenses low and optimizing your life for happiness are key tenets of the FI movement. Living in a smaller space means fewer expenses on maintenance and more money in your pocket.
Have you downsized your home? What made the transition to a smaller space easier? Share in the comments.