It may not look like it, but spring is right around the corner, and it is time to start thinking about downsizing. Did you know that in the 1960s the average homeowner lived in 1,600 square feet with a much larger family size? According to the United Census Bureau, the average new single family home is about 2,600 square feet. That is 60% more living space than 50 years ago. The bigger question is do we even need this much space? The new trend of mini-homes proves that we don’t need a lot of space to still live comfortably and within our budget.
Many times we feel like bigger is better, but having a bigger house means more time cleaning, more upkeep, and a larger mortgage payment. Downsizing is just another step of growing up. Whether you are empty nesters with too much space or a young family looking to get out of debt, downsizing is always a viable option.
Downsizing can sometimes be a daunting task to think about and an even more daunting task to complete. There is so much to research and look into that it can sometimes be overwhelming:
Which house should I buy? When is the right time to move? When will I know it is the right time to downsize? Will downsizing help me pay off my mortgage? What kinds of tax implications does downsizing have? Can downsizing help me get out of debt? Here are some of the biggest questions people ask about downsizing.
When Is the Right Time to Downsize?
Should downsizing start as soon as all the kids have moved out, or closer to retirement? Knowing when it is time to downsize can be hard. Remember that there is no set timeline or age when everyone should downsize. It depends a lot on your individual circumstances and your specific location. Take into consideration that part of the reason you are downsizing is to stop paying for unused space. Laura Dixon shares a great list of 6 signs that it might be time to downsize.
The maintenance is to hard.
One problem of having a large house is constant maintenance problems. As the home ages these fixes will get more complicated and more expensive. Living in a smaller home will give you more time and money to enjoy hobbies and travel rather than fix projects around the house.
It’s harder to get around.
As bodies age they no longer like to move as quickly or with the same range of motion as in younger years. This makes living in a two story house with the master bedroom on the second floor a challenge. It is much easier to downsize to a one story home while your health is still good than waiting until your home becomes hazardous to your health.
This is usually the largest indicator that you need to downsize your home because now you have time to travel to see your family and experience everything you have ever wanted. Downsizing will allow you to decrease your housing expenses and give you more financial freedom for leisure and travel.
It is harder to find things.
Just because it is harder to find things does not mean that you have dementia or are getting old. It could just be an indicator that you have too much stuff cluttering your home. Part of the downsizing process means going through all of your furniture, closets, and various boxes to decide what you truly can’t live without and what things you actually use on a regular basis. Decluttering now will also make it easier for children after the passing of a loved one.
After a certain point your children will be settling down with a family of their own and won’t have the same amount of freedom to visit. Loneliness is one of the top causes of depression among the older generation. One way to combat loneliness is to move into a retirement community. These communities are filled with people with similar life experiences: a built-in social network.
Your large home is no longer affordable.
Believe it or not, a monthly Social Security check isn’t very much. This could mean that the large mortgage payment is out of your budget, or eats up a large majority of it. Downsizing to a smaller home allows for a smaller mortgage payment and more of your budget to spend how you would like.
Downsizing Cost Calculator
In the long run, downsizing may save you money, but depending on what house you are planning to buy you may need to update or renovate your space. Also take into account that some of your furniture may not fit into the smaller space and you may need to buy newer, smaller pieces.
Is it really worth it to buy new furniture, and go through the hassle of selling your home and large pieces of furniture? Will you need storage for items that won’t fit into your new house?
These are questions that only you will be able to answer. One thing that could help you with this decision is this expense calculator, produced by The Financial Security Project at Boston College. It will help you see the difference you will be paying between the two mortgages and if that difference is enough to make downsizing worth it.
Benefits of Downsizing:
- Smaller Mortgage Payments
- Lower Property Tax
- Smaller Utility Bill
- Lower Property Insurance
- Less Housework
- Better Social Life
Downsizing Tax Implications
Many don’t want to downsize because they fear that the Capital Gains Tax will confiscate much of the profit. The IRS has said “If you have a capital gain from the sale of your main home, you may qualify to exclude up to $250,000 of that gain from your income. You may qualify to exclude up to $500,000 of that gain if you file a joint return with your spouse.”
However, you can also get out of paying the Capital Gains Tax if the house was your primary residence for 2 out of the past 5 years. Remember when calculating this type of gain that any modification you made to the house to make it in selling condition as well as realtor and closing costs can be deducted from the taxable profits and allow you to pay less in taxes. This is where keeping your receipts comes in handy.
Should I Downsize to Pay Off My Mortgage?
Downsizing is one way to pay off your mortgage faster. By buying a home with a smaller monthly mortgage payment you can keep paying the amount of your original mortgage and pay it off more quickly.
Dave Ramsey–a financial consultant and popular talk show host–discusses how downsizing can help you pay off your mortgage in 10 years and save over $25,000 dollars in the process. That is $25,000 you could be investing, using to get out of debt, or enjoying. This also means a home that is actually yours without a mortgage payment to deal with.
Downsizing to Get Out of Debt
Getting out of debt can be easy after downsizing. Having a smaller monthly payment means that the difference can be put directly towards paying off debt. Paying the monthly interest or minimum payments doesn’t make the debt go away. The only way to truly chop the debt is to pay off the balance. The money saved by downsizing can go straight to paying off the balance on student debt, credit cards and other types of loans. There are two strategies to debt: start with the highest interest first or start with the lowest balance. Either way, downsizing creates a great opportunity to eliminate your debt.
Think about the future space that you want. Downsizing is a lifestyle change and a step in a new direction. Think about what you want it to look like and whether or not you need space for visitors or potential family needing to move in. Does this mean one bathroom or two? A one or two car garage? Start planning early when setting goals. For couples and families, make sure you are all on the same page to eliminate hurt feelings and potential conflict.
Don’t try and tackle your whole home at once. Start room by room looking for essentials you would replace if your entire house caught on fire and you had to start from scratch. If you are trying to narrow down your book collection (or any other collection), start with your favorite five. Then add your next favorite five. Eventually you will get to the stage where you realize that you don’t really care about the books anymore. Donate the rest to a local charity or used book store. Some will give you in-store credit for donating books.
Get Rid of the Maybe Pile
Only handle something once. This will save you on time and help you keep your momentum. Either it stays or it goes.
Use The Good Stuff Now
Don’t wait until company comes to break out the nice china or put on a new pair of sheets. You deserve the best, so use your best now.
Give Away Keepsakes
If there is something that you are saving to pass down to a child or grandchild, pass it on today. Don’t wait to make a memory, and enjoy the feeling of giving now.
Chipped, Broken, or Stained, Throw it Away!
Charities and second hand stores won’t take these items and they have no worth to your neighbors. It’s okay to throw things away that no one else will use.
Measure Your New Space
Measure your new space to see if your current furniture will fit or if you need to invest in something a little smaller. The 72’’ television and sectional may not fit in your new townhome or downtown apartment. If you end up with tons of extra space then consider looking into Neighbor!
Downsizing Guide for Seniors
The earlier you start, the earlier you will finish. Downsizing may not seem like the most fun activity but you will be glad that you did it. Start with the biggest and hardest task first; this will help you keep momentum to keep going. Clean as you go. After finishing a room, deep clean it. This will make moving much faster. Get rid of the junk drawer and things you never use. If you haven’t looked at it or used it then it’s time to get rid of it.
Through the process you will find many items that will bring back old memories. Some of them may have sentimental value but if you don’t use them on a regular basis then maybe it’s time to rethink if it should be taking up space in your new place. One idea is to take a picture of the item so you can still have all of the sentimental value without taking up so much space.
Although pictures and memory books also take up a lot of space. Think about getting them digitized so the information is never lost and your family members can have a copy. Keep some of your favorite pictures to decorate your new space but be okay with letting others be put in a book.
Don’t keep extra blankets, mattresses, old toys for the grandkids (narrow the amount down to fit in a milk crate), random vases etc. If you are keeping it just in case someone comes to stay or a catastrophe was to happen, it’s okay to part ways with it so another person can enjoy it.
Pass down keepsakes and treasures now instead of waiting for a birthday or milestone. This will save you room and allow for a meaningful moment between you and your loved one.
You Got This!
Downsizing is a hard and emotional time for everyone, no matter what time of life you find yourself in. Cut yourself some slack and realize that it’s okay to be sad that life is progressing and it’s time to move onto the next stage.
Let Neighbor Help You Downsize!
If you find yourself struggling with this process and want to put off downsizing until after you move, Neighbor can help you find storage solutions near your new house for as long as you need. Also if you have gone through your house and downsized but then realize that moving to a new location isn’t for you, don’t give up.
You can rent out your newly emptied space and generate passive income that you can still use to pay off your debt and mortgage quicker. Start small and just keep going. It may seem like a huge project that will never end, but you can tackle it one piece at a time.