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Different ways that a smaller house can improve your finances
ZeroWasteHome.com, a website that focuses on how to live a waste-free life, gave us a couple of ideas about the benefits of living in a smaller home. Take note that this does not refer to a tiny house - which is actually the extreme of downsizing a house. They are referring to smaller homes wherein every space is utilized and lived in but will not feel too cramped. According to the article, they experienced a lot of benefits because they decided to live in a smaller house. Among these included a closer family bond. Since the house is small, they tend to share a lot of space. They watch the television together and they bump into each other a lot. Not only that, the upkeep of the house is easier. It is smaller so the space that you have to clean is manageable. The family also learned how to use their space wisely. All the available spaces are being utilized. But beyond these, there are obvious financial benefits that you will get from choosing to live in a smaller house. With this move, you can save your finances from ruin. In a previous article published on this site, we discussed three ways that you can save more moneyby living in a small house. Here is a recap of the three benefits.
- Smaller mortgage payments. If you make the right decisions about buying a house, you might end up with no mortgage at all - at least, this is true if you are buying a tiny home. But if you want a slightly bigger house so you have more livable space that is okay. As long as you are sure that you will be using every space in the house every day and not just occasionally, then go ahead. Buy that house. Most of the time, when you base the size of the house on what you really need, the mortgage will not be too high. Some people base their home buying on the amount that the mortgage lender will approve. This is incorrect. You have to base it on what you really need in your house.
- Lower utility bills. Another way that living in a smaller home will save your finances from ruin is by lowering your utility consumption. A smaller house is easier to heat or cool. You will not have to pay a lot just to regulate the temperature in your house.
- Less space = lower purchases. Since you do not have much space in your house, you will be discouraged from buying a lot of items. Most of the time, we buy stuff that we think we need but after a few months, they end up as junk on our house. If you live in a big house, we feel the need to fill it with furniture and home accessories. That need is not the same when you opt to live in a smaller abode.
Steps to downsize your house to take your financial life to the next levelOf course, choosing to downsize your house so you can save your finances from ruin is easier said than done. The steps will depend on your specific situation. Take for instance this one couple who downsized their life. An article from Forbes.comrevealed the story of a couple who downsized their house after an accident in their bigger house. Since the accident called for a house that does not have stairs, it gave them the opportunity to downsize their 5 bedroom house into a smaller condo unit in the downtown area. The smaller house cost them less and that allowed them to spend on the things that mattered to them. For instance, it gave them the opportunity to live in a place where they have an on-call concierge that will prove very useful in times of emergencies. When you are planning to live in a smaller house, you have to listen to your specific needs. But if you are looking for general tips, here are the steps that you can follow.
- Know your financial goal. Identify why you are downsizing your house in the first place. Obviously, it is to save your finances from ruin. But what exactly are you saving it from? Is it to pay off debt? How much is the debt? How much money should you free up from your budget? This will be useful later on as we go along the steps of downsizing.
- Survey what is in your house. Do a quick survey of every room. You do not have to be meticulous about it. Just look at what you have before you. The real work comes next.
- Separate your possessions: keep, donate, throw. This is the longest step. You have to go through all your stuff and decide where they will go. You can keep some of them. You can donate others to family, friends, or a chosen charity. You can also throw what can no longer be used.
- Decide on how much downsizing you will do. With what you have left, think about the house that you can now live in. If you lived in a 5-bedroom house, can you now fit in a 3-bedroom house? Can you already afford that? If not you think that it will be too costly for your budget, then you need to repeat steps 2 and 3. Target to live in a house that you can afford. If you can only afford to live in a 2 bedroom house, then downsize your possessions some more.
- Look for the house that will fit your new lifestyle perfectly. Once you know that your possessions can now fit the house that you can afford to live in, then start looking for it. Ideally, you want to choose a house that is near your work so you can also save on your commute. Check on the availability of that property so you know if you can rent or buy it.
- Make the move. Once everything is done, you can now make your move. A lot of things will happen at the same time. If you own the house that you are currently living in, you may want to put it up for sale. Talk to a real estate broker. If you are renting, then let your landlord know that you will not longer renew your contract. When everything is in order, you can now make the physical move to the smaller house.
- Create a more detailed plan of what you plan to do with the money you will save. While going through the last step, you may want to think about the detailed plan for the money that you will save after moving to a smaller house. How will you use it to save your finances from ruin?
How to improve your financial position after downsizingDownsizing to a smaller house is no easy feat. It is time-consuming and the processing of going through all your stuff can be tedious. But in the end, it is actually very rewarding. When you look through all your things to get rid of the items you no longer need, you are actually going through a cleansing process. It can be liberating once you start removing the things that are actually just pulling you down. When you settle into that smaller home, you need to realize that you are only halfway there. You still have a lot to do if you want to save your finances from ruin. The key here is knowing where you will put the extra money that you will free up after moving to the small house. Here are three things that we suggest you can do.
- Pay off your debts. If you have some debts, this is the best place to start. If you want to improve your finances, you need to get rid of those that are pulling it down. Get rid of the credit obligations that have a high-interest rate so you can lower the money that you are wasting on them.
- Increase your retirement contribution. Securing your future is a great way to reward yourself. You do not want your older self to suffer for the mistakes of the past. You want to be able to enjoy everything that you have worked hard for. Put the extra money in your retirement account - at least until you are able to reach the maximum contributions allowed.
- Invest in a passive income. Finally, you should commit to investing your money so you can build a passive income. Why not buy another small house and rent it out? That should help add to your monthly income and give you more room in your budget. If you do it right, you might be able to enjoy an early retirement.