5 Signs it Might be Time to Downsize Your Home and Save More Money
Do you really need all that space and all those things in your home? Many Americans would be surprised at how tiny and “cramped” things once were. In the 50s, when families were bigger, the average single family home for a middle-class American family was less 1000 square feet. In Japan, most families still live on much less than that of fairly modern and high-income cities.
But we are not in the 50s anymore and, over the last 60 years, we have made huge progress and expectations have shifted. It is perfectly realistic for people today to have more grandiose expectations on the size of homes they want to live in and the number of things they want to own. The current typical American suburban home has the ingredients to occupy an enormous space and cost a ton of money: a humongous “open-plan” eat-in kitchen, several bathrooms, at least two bedrooms, a study room and much more. Of course, this space also has to be filled with expensive furniture, appliances and other modern conveniences which consume a lot of power.
Before long, you could be breathlessly pursuing an idealized American Dream that is never-ending and draining your finite financial resources. You may not even realize it unless you take a deep breath and go through your finances from time to time. If you are getting sucked down that road, you may need to consider downsizing your living space to free up money for your savings and investments. Here are five clear signs that it is time to take that pause and start thinking about downsizing your home:
You are Spending Too Much Money on Your Home
Ideally, you shouldn’t be spending more than 30% of your income on your home. In some countries, that rule of thumb is even enforced by building management companies. In the US, you can rent anything or buy anything as long as you are willing to pay. If you are currently spending more than 30% of your income on housing, you are living beyond your means and it is time to downsize.
You are Spending More Than 50% of Your Income on Fixed Costs
Fixed living costs cover not only the cost of rental or mortgage but also other monthly expenditures such as insurance payments, car loans, phone bills, internet subscriptions, cable TV subscriptions, club memberships and various other recurring bills. If these expenditures are eating more than 50% of your income, then you may need to downsize in order to free up money for savings and investments.
You Can’t Keep Up With Savings
If you are earning the median US income of $55,775 or above, you should be able to max out your 401 (k) contributions and even put money in other retirement accounts such as the Roth or traditional IRA. If you find yourself only managing meager savings each month, you are not setting yourself up for a solid retirement nest egg. This means that you could spend your retirement years in poverty. To avoid this, you should ideally put 15% of your income into a retirement fund for the golden years. Considering the poor market performance in recent years, some financial planners even recommend putting 22% of your income into a retirement account to build a great financial arsenal for the future. You won’t manage that if you are living beyond your means.
Your Credit Card Debts are Ballooning
You could finance a big lifestyle by constantly taking up debt, but this is going to drain your finances once you begin making the payments, paying credit card fees and interest. If your credit card debt is ballooning out of control or impacting your credit score, it is time to scale down your living.
You Simply Have Too Many Things
Everyone has this inherent need to acquire and own things. For some people, it can hit compulsive levels. Many Americans begin working in their early to mid-20s and they begin buying things and subscriptions at that age. As they rise up the career ladder and make more money, they continue acquiring things or “gleaming versions” of the things that they already own. By the time they hit their 40s, their homes can resemble a mini-mart, containing hundreds of things that have not been used in years. At this point, the need to own has taken an unhealthy turn.
It is wise to consider decluttering and downsizing so that you can hold on to the things that you truly need throughout the years. Japanese author and organizational consultant Marie Kondo developed a very simple but efficient technique, called konmari. Konmari is a useful tool you can use to declutter your home and get rid of the things that you do not use, to ensure the physical and financial space that you need.
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