Downsizing your home is an incredibly emotional process.
Speaking from experience, when my wife Laurie and I decided to move with our daughter to Sedona, we realized just how much we were changing our lives through downsizing. The struggle to reduce the amount of “stuff” was real in every sense, but so too was weighing whether this move was the best financial decision for our family.
Sure, our home would be physically smaller – and with that the monthly bills, taxes, and so forth, but would it be worth it in the long run or would it cost us a whole lot more? As a financial planner, husband, father, and recent transplant, these are the things we kept in mind as we started our transition:
- Think long-term. If you’re thinking about downsizing your house, planning ahead will help ensure your transition is a success. Do you need extra space for that freelance business you’re planning to start? Or were you left with more than enough room to spare after the kids headed off to college? Only you know if you can spare that extra space or if losing it would be more of a headache than it’s worth!
- Consider hidden costs. Downsizing may save you money in those monthly mortgage payments, but what about the hidden costs? Does your home need any repairs to get it market-ready? What about your old furniture and appliances—will they fit into the smaller place, or do you need to bump up that budget for more space-efficient pieces? And don’t forget to factor in the cost of moving, property taxes, storage, or even higher HOA fees. When it comes down to decision time, you may find that taking that leap to a smaller space will save you big time—or that you can save just by staying right where you are.
- Take inventory. One of the first things to do is take a close inventory of your belongings and ask yourself, if everything you owned is lost in a fire, what would you replace? Make three lists – must haves, can live without, and things I could replace. Then, part with the things you don’t need. Sell for cash in yard sales or listings in Facebook, Craigslist, LetGo, and OfferUp. Be sure to allow several weeks in advance to sell items. For items that don’t sell right away, consider storage for those with significant value and relist after your move.
- Take time making your new home your own. Create a well-planned, realistic budget for improvements, replacement furniture, and decorating. Don’t let the emotions of “being without” in a new home cause you to overspend. Spend time looking for bargains. Remember your yard sale? You probably sold some quality items at huge discounts. You may be able to find the things you need online or yard/estate sales.
- Reap the rewards! One significant financial benefit of downsizing is reducing your monthly budget by several hundred dollars per month with smaller household bills and maintenance requirements. The savings are a huge opportunity to pay off credit card debt, car loans, and other credits. Look at ways you can take any residual cash to increase contributions to IRA, Roth IRAs, and employer-based retirement plans. A reputable financial planner can help you take a fresh look at your new financial standing and help create a plan for further improving your personal financial condition.
Bill Kelso, CPA, CFP®, is a financial planner* at Pinnacle Financial Advisors, which assists individuals, families, and businesses with financial planning and wealth management in Sedona and the Verde Valley. He is a Registered Representative offering Securities through UNITED PLANNERS FINANCIAL SERVICES, Member: FINRA, SIPC. *Advisory Services offered through SEROS FINANCIAL, LLC. Pinnacle Financial Advisors, Seros Financial, and United Planners are independent companies.
