Downsizing & Rightsizing are the Fastest Ways to Improve Your Financial Situation

Downsizing and Rightsizing are the fastest ways to improve your financial situation, if that is what you truly want or need to do.

Downsizing is usually buying a smaller home after the kids are gone and is often done to reduce housing costs and maintenance hassles. It's a no-brainer for many retirees and empty-nesters. But what is "rightsizing?"  Rightsizing is to make a move purely to reduce your housing costs and improve your financial picture quickly.

Rightsizing includes...
   --The same size house in a less-expensive area.
   --A smaller home in the same area.
   --A home that doesn't have all the luxury features of your current home but has the necessities and costs less to own and maintain.
   --A condo instead of a house.
   --A first-time buyer choosing a property that is not much more than their current rent per month yet by owning they will be paying down the mortgage overtime.

Every day I meet people who are stressed about money, living paycheck to paycheck, worried about the future. Other homeowners are doing fine but they are in their late 40s/early 50s and beginning to see the light towards retirement but can't see how it would be possible with 25 more years on their mortgage or because of the home equity loan they took out a few years ago. And I meet buyers who are excited to buy but really have almost no savings beyond 3.5% down.

Both downsizing and rightsizing require a new perspective of looking at your housing "needs" vs. "wants." It requires your number one "need" to be affordability now and for the future. By the way, affordability it is not to be confused with what the bank says you can afford. Affordability is what you can easily pay without stress so you can live a normal life and save for the future. All other things you thought were "needs" are really just "wants". 

So how did I become an expert? Because I've learned the lesson...been there, done that. My husband and I were doing fine but all of a sudden looked at our mortgage on our oceanfront condo and realized we were working so hard we didn't have time to enjoy it and started thinking at 48 years old, how much longer did we want to keep it up. We sold and moved to a condo almost the same size but off the ocean yet within bike-riding distance. We also gave up the pool, hot tub and gym (along with high HOA dues). And we gave up the posh address. Most importantly, we gave up more than half of a mortgage payment and a lot of stress! This may be too personal to share but I'm trying to make a point--by making that move, we instantly saved $2500 per month and that's $30,000 per year! And that savings is not by working harder but just by making one change in our life.

Maybe our situation was extreme but I recently ran the numbers for a past client and by moving from their current house into one slightly smaller (several of their kids have left home since they bought) and in a less-exclusive neighborhood they can cut their mortgage payment by $600 per month or $7,200 per year.

Another client is considering a move so the wife can stay home with the kids. By changing neighborhoods (actually moving to an area with better schools) they can save $700 per month for the same size home.

Both of those examples include the cost of selling and buying into the equation. I live and work in southern California, so maybe other areas of the country would not create such dramatic savings.

IF improving your financial situation is the goal, downsizing and rightsizing are a lot fast way to improve than by clipping coupons and bringing a sack lunch to work.