The Upside to Downsizing

Source: Practical Money Skills

Downsize often has a negative meaning in relation to the workplace; but when it comes to your home, car and lifestyle, downsizing or simplifying can actually be positive, improving your peace of mind and your financial outlook. According to a 2011 Federal Reserve report on consumer credit, total U.S. consumer debt has reached $2.43 trillion. In America, many of us are continuing to live beyond our means–buying more house, car and products than we can use or afford. In an effort to improve your finances and lifestyle, here are a few things you might consider downsizing:

  • Home or living space. Most of us are familiar with the sentiment “bigger is better.” But is it? When it comes to homes, larger houses require more maintenance, more insurance and higher mortgages. Before buying or renting that home with a few extra bedrooms, ask yourself: do I need this excess space? Is the cost worth the benefit? You may find that a smaller home or apartment actually provides some freedom from the expenses and responsibilities of a larger one.

  • Car or transportation needs. For many people, a large car symbolizes luxury. But in actuality, a smaller or more fuel-efficient car could be more comfortable, more environmentally friendly and more affordable. Likewise, relying on alternate means of transportation like carpooling, walking, biking or public transportation can not only offer significant savings in terms of gas and maintenance costs but can also be less stressful, more healthful and more sociable than driving.

  • Debt load. Personal debt is a major cause of financial stress and strain for many of us. The first step to tackling debt is sitting down to figure out what you owe. Next, create a plan for paying it off, consolidating balances to lower-interest accounts if needed. Although it takes time and dedication, tackling debt and building your savings is key to financial wellbeing. The less debt you have, the easier it becomes to build savings and meet financial goals. Find out more about the best ways to tackle debt here.

  • Paperwork. Online banking and bill management is a convenient way to keep track of your finances; make account payments on time and avoid the hassle of visits to the post office, buying stamps and writing checks. It often takes only a few minutes to set up online bill paying and put paper bills and statements behind you. Scheduling automatic payments also makes bills easier to manage–in some cases, you’ll even enjoy slight discounts for automating payments. Setting up automatic weekly or monthly deposits to your savings account is a wise, effortless way to boost your savings too.

  • Impulse purchases. Most of us purchase items or services that we just don’t really want or need. It could be a daily latte, clothes you won’t wear or grocery items that go bad before you use them. One way to cut back on these impulse buys is to ask yourself how an item will change your life for the better before you buy it. Is the positive impact worth the cost? Another strategy to cut down unnecessary spending is to add up impulse purchases over a month to see how much you are really spending on those lunches out or new shoes.

  • Financial goals. It can be overwhelming to try and juggle multiple money management goals at the same time: Start an emergency fund. Buy a house. Pay off debt. Save for a new car. To have a better shot at successfully meeting your goals, choose one or two to work towards. Just make sure they are realistic and specific, and that there is a definite timeframe in which you plan to meet them. The tips here can help.

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