How Downsizing Can Save You $1,000 a Month
Skipping the daily coffee shop run and getting rid of unused subscriptions will certainly save you money here and there, but downsizing is a way to free up much more of your budget. And in retirement, a smaller home in a place with a lower cost of living may just make sense.
Perhaps your family home feels too big for you now that your children have moved out. Or maybe you’d like to move to a one-floor house to reduce the risk of falling. Whatever the reason for your move may be, here’s how downsizing can help you save — even as much as $1,000 per month.
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5 ways a downsize can help you save
When you sell a large home in exchange for a smaller one, the savings opportunities may be obvious. But here are some of the key ways you can save, including some you may have overlooked.
- Mortgage or rent reduction: Swapping a higher-cost home for a lower one will help decrease your monthly mortgage or rental payments.
- Lower property taxes: Property taxes are based on your home’s assessed value. A more affordable home will translate into lower property taxes, especially if you move to an area that has a lower property tax rate.
- Smaller utilities and maintenance: It’s less expensive to maintain a smaller home. For example, you won’t need as much energy to heat your home, resulting in a lower energy bill.
- Reduced homeowners’ insurance: Premiums are generally based on the home’s value so a decrease in the cost of your home should result in lower premiums. Just keep in mind that there are other factors that can impact these premiums, such as the location and how old the home is.
- Fewer furnishings: A big home gives you more space for furniture, decor and more. Downsizing means you can sell some of these items and avoid having to buy new ones for your next home.
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Can you save $1,000 a month by downsizing?
Downsizing looks different for each person. But depending on your situation, you may be able to free up $1,000 or more each month. Here’s an example:
A recently 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 a monthly insurance premium of $200. They sell their home and move into a condo worth $375,000 with a monthly mortgage payment of $1,400, monthly property taxes of $450 and a monthly insurance premium of $120.
Their monthly housing costs have now dropped from $3,700 to $1,970, saving them $1,730.
What to consider before downsizing
The benefits of downsizing goes beyond money. A smaller house comes with less space to manage and clean, for instance. If you decide to relocate, you can also see your downsize as an opportunity to explore a new place or build a new social circle.
But it’s important to take the time to think through such a big decision and carefully outline what your goals are for the downsize. Consider renting temporarily in the locations you’re interested in before buying again.