(Akiit.com) Americans today have bigger homes than ever before. In 1950, the average home covered about 1,000 square feet. Homes weren’t large by any means, but they certainly weren’t bijou either. Then, following a spate of house building in the 1960s, home size increased yet again to 1,500 square feet. Larger homes allowed children to have individual bedrooms and ensuites, as well as providing more space for utilities and living. By the time the 2000s came around, house sizes had hit their peak at more than 2,500 square feet according to www.daveramsey.com/.
Having a big house is imprinted onto the American psyche. It’s a sign of success and material wealth and is important when considering ourselves in comparison to others. But having a large home comes with several downsides. For starters, a lot of space in modern homes remains unused. All those areas, however, cost money, not only in terms of higher house prices but also to heat and light. Larger homes demand more energy, leading to higher utility bills.
There are knock-on effects too, which can affect family life. For instance, larger homes aren’t necessarily any cheaper than the smaller houses of yesteryear, even if construction methods have gotten better. All the additional features and upgraded materials conspire to keep prices high. Around a third of all Americans spend upwards of fifty per cent of their income on housing expenses, 
meaning that they have less money left over for everything else. For many, there just isn’t enough money left in the pot at the end of the month for holidays, kids birthday parties, and day trips, cutting into family life.
The good news is that you don’t have to be a slave to high housing costs. More and more Americans are choosing to embrace downsizing. A minimalist life reduces stress and allows you to focus on the things that really matter to you as an individual. Many people find that once they downsize, they’re actually happier than before, even though they have less space. Their homes are easier to manage, they’re spending less money on bills, and they have more resources to plow into the things that make a difference to their happiness.
There’s never been a more critical time for people struggling with finances to downsize. Since 2010, the private sector – meaning people like you – have taken on more credit card and mortgage debt than ever before in the nation’s history. Private debts now total more than $25 trillion, not including unfunded liabilities. We need a way to address this problem, pay off debt, and finally begin to build wealth. This is how downsizing can help.
Less Need To Splurge On Furniture
Large spaces demand to be filled. But with what? Usually expensive furniture you have to buy on credit. Smaller homes, on the other hand, not only require less furniture, but also demand that you are more discerning with the furniture you have. In order to bring the best out of a small apartment, you’ll want to choose brightly colored furniture that helps open up space. Well-placed furniture can make all the difference to the feel of a room, especially if space is at a premium.
Lower Debt
When space is limited, it’s harder to go on a spending spree. Often, there isn’t the room for a new coffee table or sofa bed, and so there’s less incentive to buy one. No extra bedrooms are demanding to be filled with beds, desks, and wardrobes – all expensive items.
Better Portfolio Allocation
If you look at the average American’s investment portfolio, you quickly realise that it’s dominated by property. Even stranger, the majority of people don’t ever think about this because they assume owning a home is perfectly normal. It might be “normal” from a social standpoint – after all, it’s the ambition of the majority of people to own a home – but from an investing perspective, it’s a little risky.
All good investment planners know that investment portfolios should contain a broad spectrum of uncorrelated assets – things that tend not to move in the same direction over time. For instance, a mutual fund might try to protect its clients’ money by investing in both utilities – which tend to go up in bear markets – and technology, which tends to rise in bull markets. Having all of your assets in one asset class, such as housing, is a bad idea because house prices are volatile and they can fall without warning, as happened in 2008. Yet this is the situation in which most Americans find themselves, mainly without thinking about it. It’s a high-risk strategy, to say the least.
Downsizing not only makes the cost of living cheaper, but it also helps to diversify a person’s portfolio, reducing risk. When you downsize, you can free up some of the equity in your home and then put it straight into other assets. Bonds, stocks, shares, and commodities can all insulate against financial risk (to some extent), giving you a more balanced portfolio.
Should You Downsize?
According to www.wrenrealtyinc.com/, it’s now easier than ever to downsize, thanks to the power of new business models. In the past, estate agents brokered deals between private buyers and sellers. But because of the need for all buyers and sellers in a chain to agree on the transaction, sales could take a long time. With the rise of homebuying companies, this is no longer a significant consideration. Companies with vast capital reserves will directly buy you out, usually within a few weeks, regardless of the state of your property.
Downsizing is a big decision, but it can reap tremendous financial rewards. How do you know if you’re a good candidate for downsizing?
You Want To Fund Children Through Education
Education fees, especially at top universities like Harvard and Yale, can run over $100,000 per child on four-year courses. That’s a lot of money to stump up, especially if you have high home expenses. Downsizing can make it easier to build up savings during those expensive years, providing your family with a rainy day fund, should you need it to pay off student debt. Remember, bankruptcy cannot clear student debt – once it’s incurred, it’s there for life.
You Want A Second Property
Many people need to live in a particular location for work. But if they had the choice, they’d rather live somewhere else, perhaps out of the city in nature. Downsizing allows busy people to get the best of both worlds. On the one hand, they have their city dwelling – somewhere they stay during the hectic work week – and on the other, they have their country retreat for fun at the weekend.
Downsizing can also help you generate secondary income streams. For example, you might want a second property to provide rental income to cover the cost of living of the first. If you’re prepared to sacrifice floor space, a second home can virtually eliminate the cost of a mortgage, especially if you’re able to charge lucrative rents.
You Want A Smaller Environmental Impact
For many Americans, the environment is a significant concern. But it’s not always obvious what individuals can do about it, except go vegan and buy expensive electric cars. Downsizing is a cash-flow-positive method of reducing your environmental impact. Smaller homes use fewer resources and less energy.
You Want To Live A Simpler Life
After a few years of earning money, it soon becomes clear that money isn’t the answer. At first, nothing is more important than having the latest phone or car, but after a while, these shiny toys lose their lustre. The same applies to homes. Studies show that people feel good for the first few weeks after buying a large house, but they soon return to their baseline level of happiness, as if they had never purchased the home in the first place.
Smart people don’t bother working for something that’s not going to bring them greater joy and cut their losses as soon as they can. Smaller homes offer a simpler life. You spend less money on renovations, maintenance, and upgrades, and more time on the things that matter to you.
Your Relationship Broke Down
Relationship breakdown can cause all sorts of financial headaches, from legal fees to child support. But if you’re going through relationship issues, downsizing can provide the financial leeway you need to see yourself through. Family homes are expensive, and so if you no longer need one, there’s no point paying for it.
You’re Getting Retired
Retirement is a time for doing all of the things that you didn’t have time to do while you were working. Travel, spending time with family, and pursuing hobbies should be a priority. But doing these things can be difficult if you’ve got large overheads. Downsizing not only frees up money in the here and now, but it also reduces ongoing payments in the future. Having a lump sum available gives you the freedom to use your golden years as you please. So what are you waiting for?
Staff Writer; Roy Poole