How Downsizing Can Save You $1,000 a Month
Skipping the daily coffee shop run and deleting unused subscriptions will save you money here and there, but downsizing is a way to free up more of your budget. And in retirement, a smaller home in an area with a lower cost of living may make sense.
Maybe your family home feels too big for you now that your children have moved out. Or maybe you’d like to move to a single-story home to reduce the risk of falling. Whatever the reason for your move, here’s how downsizing can help you save — even as much as $1,000 a month.
5 ways to downsize to help you save
If you’re selling a large home for a small exchange, savings opportunities may become apparent. But here are some of the key ways you can save, including some you may have overlooked.
- Depreciation of real estate or rent: Swapping a higher-cost home for a lower one will help lower your monthly mortgage or lease payments.
- Low property taxes: Property taxes are based on the assessed value of your home. A more affordable home will translate to lower property taxes, especially if you’re moving to an area with a lower property tax rate.
- Less resources and maintenance: It costs less to maintain a small home. For example, you won’t need as much energy to heat your home, resulting in lower energy bills.
- Discounted homeowners insurance: Payments are generally based on the value of the home so a decrease in the cost of your home should result in lower premiums. Just remember that there are other factors that can affect these premiums, such as location and how old the home is.
- A few household items: A larger home gives you more space for furniture, decor and more. Downsizing means you can sell some of these items and avoid buying new ones for your next home.
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Can you save $1,000 a month by downgrading?
Downsizing looks different for each person. But depending on your situation, you can set aside $1,000 or more each month. Here is an example:
A newly retired couple lives in a large family home worth $600,000 with a monthly mortgage payment of $2,800, monthly property taxes of $700 and monthly insurance payments of $200. They sell their house and move into a $375,000 condo with a monthly mortgage payment of $1,400, monthly property taxes of $450 and monthly insurance payments of $120.
Their monthly housing costs have now dropped from $3,700 to $1,970, saving them $1,730.
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What to consider before downsizing
The benefits of downsizing go beyond money. A small house comes with less space to manage and clean, for example. If you decide to relocate, you may also see your downsizing as an opportunity to explore a new area or build a new social circle.
But it’s important to take the time to think about such a big decision and carefully define what your goals are for downsizing. Consider renting temporarily in areas you are interested in before buying again.
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