Downsizing a Home: Can Reduce Financial Strain
Submitted by Holly Welles - Holly Welles is a freelance writer with a focus on finance and real estate. You can find more of her advice on her blog, The Estate Update, or keep up with her writing on Twitter.
(Contributions are guest opinions only and don’t reflect the opinion or endorsement of Money Fit by DRS, our staff, client or other interested parties.)
Let’s Review the Pros & Cons of Downsizing Your Home.
A decision to start downsizing your home isn't easy. You likely feel a sense of attachment, whether you lived at the same address for five years or forty. Though you've grown accustomed to your current situation, it's essential to acknowledge when your circumstances have changed and embrace the transition.
In truth, downsizing your home has a variety of appealing benefits. With a significant reduction in your mortgage payments, utilities and property insurance, you'll have a far better handle on your finances. You'll also worry less over maintenance and have more freedom from your possessions.
So what should you keep in mind if you're unsure whether to move to a smaller home? How will it help to reduce your financial strain, and how do you know if you can handle less space? We'll answer those questions and others like them, looking at the subject of downsizing in greater detail.
The Benefits of Downsizing
Downsizing is an effective solution for eliminating debt. It's far easier to manage the amount of money you owe when you spend less on your mortgage. Without the financial burden of your previous payments, you'll have more to put toward credit cards, loans, medical bills and other sources of debt.
You can also use the proceeds from the sale of your former home to pay cash for your next one. It's possible to cover the full price of your new home without taking out a major mortgage, depending on the size of your previous property. You'll have far more freedom without the constant pressure of a sizable mortgage payment every month.
It's also important to think about the flexibility of your new situation. As you continue to pay down your debt, you won't feel as much anxiety over what you buy, whether seeing a movie or going out to eat. You won't double-think your purchasing decisions as often, and it'll improve your overall quality of life.
Beyond these immediate benefits, you should also give thought to your long-term plans. Placing a portion of the profits from your home sale in your retirement fund can help ensure your financial security in your later years. It's a small consideration, but it has far-reaching implications for your future comfort.
The Drawbacks of Downsizing
As mentioned earlier, you likely feel a sense of attachment to the place where you live. It's full of emotional memories, where you spent time with loved ones, celebrated birthdays or raised children. Many people find it difficult to part with their previous home, and those feelings can overwhelm them.
You should also think about the size of your living space. American homes have tripled in size over the past 50 years, and downsizing might force you to contend with the materialism inherit in our culture. You won't have as many closets or rooms for storage, and you may have to place your belongings elsewhere. Otherwise, you'll have to discard or sell them, which is also painful if the items have sentimental value.
Aside from storage, your limited square footage may cause other problems. It could prove inconvenient when you have guests over, and if you enjoy hosting parties, you may have to take them outside to your yard — weather permitting. In other words, you'll have to account for the restrictions of your home.
The process of selling your home may present its own set of challenges. Do you need to make repairs before your home is market-ready, and will your appliances fit in your new space? Downsizing may have its share of benefits, but it also poses some tough questions you'll have to answer.
How to Know When You're Ready
It's natural to feel hesitant when selling your home. It's your home, after all, and it's hard to leave it behind when it's become such a familiar touchstone in your life. Still, you need to look past those initial feelings of reluctance and examine the opportunities that come with downsizing.
As you continue, consider the negative aspects of downsizing as well. You won't know if you're ready until you fully explore the option, with everything it entails. Once you review the advantages and disadvantages of downsizing — and your current situation — you'll feel far more confident in your choice.
Is Downsizing Right for You?
The decision to downsize your home isn't easy, but sometimes it's necessary. That's okay, and many people in your position have embraced the change with optimism and a positive mindset. They accepted that having more of something isn't the same as getting the most from it.
With that in mind, evaluate your available options and determine if downsizing is right for you. You may see the value in a smaller home, or you may decide to stay at your current property. Whatever you choose, you're making the right decision for your unique set of circumstances.