Downsizing is one of the biggest real estate trends to come out of the pandemic. People are pulling up stakes and setting down roots in smaller homes. Many of these downsizers do it because they need less space, or they can no longer keep up with maintenance. But a growing number of movers are switching to smaller homes for the financial benefits.
If you’re on the fence about whether you should downsize, here are three financial reasons why you should say goodbye to square footage.
1. You Can’t Cover an Unexpected Expense
New data shows just four in ten Americans have the cash to cover an unexpected expense that costs $1,000. Everyone else would have to borrow money.
If you can’t afford an unexpected expense, how you end up borrowing depends on where you live, as each state has different rates and terms. Researching online loans in Tennessee may give you access to cash when you need it in an emergency, but these products may perform differently from online loans in Texas, Kansas, or Utah for example.
When money is tight and you have no other place to turn, borrowing online might make sense, but even the best online loans Tennessee has to offer aren’t a permanent alternative to savings.
Most online direct lenders recommend their financial products as a backup when your savings dry up. Downsizing will help you build emergency savings once you pay off what you owe.
2. You Aren’t Saving for the Future
A balanced budget takes an equally short- and long-term approach to your finances. While an emergency fund may help you tackle the day-to-day surprises, long-term investments help you prepare for life’s biggest events and purchases. Retirement, education, and property are just some goals you should be working towards.
Downsizing your housing costs by moving to a smaller home can help you give a boost to these savings targets. The earlier you do it, the longer you have to see your decision pay off. But even people close to or in retirement can benefit from downsizing. It can reduce your expenses and stretch your savings into your golden years.
3. You’re Struggling to Make Ends Meet
Savings of any kind may be the last thing on your mind if you can’t pay your monthly bills. Unfortunately, you wouldn’t be alone. A whopping 70 percent of Americans are struggling to make ends meet.
What this looks like may be different for everyone. For you, you might have to wait until payday to cover an overdue bill, incurring a late fee and extra interest while you’re at it. In any case, it’s a strong indication your expenses outweigh your income.
If your paycheck is stretched to its snapping point, tweaking your budget to eliminate unnecessary spending can give you some breathing room. But you might have to do more than deny yourself takeout and streaming services. You may have to downsize to make a meaningful change to your budget.
According to the 30% Rule, you should only spend roughly 30 percent of your gross income on living expenses such as mortgage payments, property taxes, utilities, and HOA fees. Keep this in mind when you’re searching for a new home.
Is Downsizing for You?
If you’re struggling to pay bills, unprepared for an unexpected expense, or ignoring your future, it might be time to downsize. A big move to a smaller space can help you get these financial problems under control.