Deciding the Right Time to Downsize Your Home
Introduction
Have too much home? It may be time to downsize. But when do you know it’s a good time to make the move? While the decision is never easy, there are times when it may save you stress and money to relocate to a smaller home.
Image Description: A couple considering the benefits of downsizing their home.
When Should You Downsize?
Typically, downsizing is triggered by a life event like children moving out or retirement.
“It’s all a matter of goals, needs, and wants,” said Scott Bishop, certified financial planner and vice president at STA Wealth Management. “It’s about what makes you happy and keeps your financial plan on track.”
Bishop downsized homes after his oldest child began his senior year of college. He and his wife moved from a 4,200-square-foot home on a 10-acre property to a 2,300-square-foot townhouse.
“We were empty nesters,” he said. “I had a goal to be debt-free and travel at age 50.”
Image Description: A couple packing boxes in preparation to downsize their home.
Assessing Your Space
Another time to consider downsizing is if you’re no longer using the space you’re paying for. Take stock of what rooms you frequently use and which ones you don’t to decide if you really need the house size you currently have, said Lisa Duke, financial coach and member of the Financial Independence Retire Early movement. Duke has downsized twice over the past decade.
“We wanted to have an extra room for guests,” she said of her reasons for choosing her earlier bigger homes. “I didn’t really understand square footage, that when you move up just one bedroom, everything is so much bigger. We had so much extra space.”
Image Description: A floor plan showing unused rooms in a large house.
Financial Considerations
Hidden Costs of Owning a Large Home
The financial benefits of moving to a smaller home extend past the lower purchase cost of a smaller home. There are plenty of hidden fees associated with owning a home, including maintenance and taxes. Not to mention, there can be a mentality of wanting to “keep up with the Joneses,” which can financially hurt you in the long run.
“Downsizing gets you to downgrade your belongings,” said Duke. “And insurance is going to be lower. Almost every bill is going to go down.”
Image Description: A financial chart showing reduced costs after downsizing a home.
Lower Utility Bills and Taxes
Less space to cool and heat means hundreds off your electricity bill. Bishop said his summer electricity bill went from $500-600 a month to $100 a month after downsizing. Smaller homes can also mean a smaller tax bill. The 2017 tax bill capped the State and Local Tax (SALT) deduction at $10,000, which previously allowed taxpayers to federally deduct an unlimited amount of state and local taxes paid, including state property tax. Larger pricier homes generally carry higher property taxes, so in essence, the larger your home, the more you could previously deduct. Now that the deduction is capped, owners of larger homes don’t get the added tax benefit.
Image Description: A comparison of utility bills before and after downsizing.
Steps to Downsize
Get Your Home Appraised
Start by getting your home appraised and figure out how much money it could sell for. The price depends on many factors. Here’s our complete guide on how to sell your home.
Image Description: A home appraisal in progress to determine the selling price.
Declutter and Simplify
Downsizing often means reducing the number of belongings you have. This can be a liberating process that simplifies your life and reduces the amount of clutter in your home.
Image Description: A couple decluttering their home in preparation for downsizing.
Conclusion
Deciding to downsize your home is a significant decision that can lead to financial benefits and a simplified lifestyle. By assessing your current space, considering financial implications, and taking the necessary steps to downsize, you can make an informed decision that aligns with your life goals.
Image Description: A happy couple enjoying their new, smaller home.
