How Much Could You Save By Downsizing Your Home?

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When we built our home in 2004, we paid attention to the details we thought were important at the time. We found a floor plan we liked with the right number of bedrooms and an ample sized kitchen on a lot adjacent to a park. Unfortunately, we didn’t think a lot about how our needs would change over time. A lower level basement that had been the kids’ toy room when we first moved in now sits almost empty. That’s because the kid’s main source of entertainment is their computers (which reside in their rooms), or socializing with friends outside of the house.

Our lower level basement, which is 1/4th the total square footage of our home, is used for nothing more than storage and the home of our cats’ food and litter boxes. Every time I feed the cats, I look at the large empty room and wonder how much money we could save by downsizing our home. I did a little estimating, and the amount is staggering.

Mortgage Payment

Just as a rough estimate, I calculated how much our mortgage payment would be if we sold our current home for its most recent appraised value, then bought a home worth 25% less than the one we currently live in. After applying the equity we’ve built up as a down payment and taking into consideration current interest rates, we’d save about $400 a month on our mortgage payment alone.

Property Taxes

Our property taxes are about $6,100 per year currently, or about $508 a month. Again, just as a rough estimate, if our new imaginary home was worth 25% less, it’s logical to think that our taxes would decrease by a proportional amount, saving us another $127 each month.

Utilities

We currently budget $400 per month for natural gas and electricity. There are times during the year when it’s higher or lower, but it’s a fairly accurate average. If we again cut that bill by 25%, we’d save $100 a month.

Total Savings

If we total the three areas of savings listed, we would save an estimated $627 a month by reducing the size of our home by 25%. Since 25% of our home is completely unused, we likely wouldn’t even notice the difference in our day to day lives.

We have a significant portion of our home we don’t use, and hence the exercise, but there are other reasons why you may be in the market for a home downsize:

  • Unused Space: Like my situation, it could be just a change in the stage of your life. Kids grow older, and you’ll eventually need less space because they moved out. You could also have simply bought too big of a home when you made the purchase.
  • Big Yard: That acre sized lot and a huge back yard seemed like a good idea at the time, but now it’s just a pain to maintain. By reducing the size of your lot, and the value of your home, you can save some money and also the time it takes to take care of your yard.
  • Empty Garage: Having a big garage adds storage space to your home. But is that extra storage space necessary, or is it just an excuse for you not to organize your things as you treat that space as a glorified dumpster? You might now be realizing how much junk you can actually throw out since you will never find anything in that garage anyway.
  • Mindset Change:That huge island in the kitchen looked awesome when you toured the open house, but now you dread having to wipe the big counter every day.

It’s difficult to make the decision to pack up your belongings and move. It’s even harder to say goodbye to the house you’ve called your home for years. But calculating how much you could save in your monthly budget every month will definitely make that decision a little easier.

Hey, it’s David here.
By moving, Travis could save $627 each and every month for the rest of his life if he’s willing to move to a smaller place. I live in California, where home prices could be three times as high as the midwest where Travis lives. I thought it would be interesting to see how much a typical Californian could save if they downsize.

Here are the numbers:
I wouldn’t say the majority of residences here carry such a debt load, but it’s actually quite common for Californians to take out million-dollar mortgages. At 3% interest per year, that loan will require a monthly payment of $4,216. Cut 25% of that, and you are looking at $3,162. That’s a savings of $1,054.

Property taxes are another huge expense here. Newer homes could have property taxes as high as 2% of the property value. Assuming someone puts down a 20% downpayment when the home was purchased, then a $1.2 million dollar home would cost as much as $24,000 in property taxes per year. Cut 25% and that’s another $6,000 a year in savings, or $500 a month.

Utilities seem to be where we actually save a little versus the rest of America. A typical utility bill here is more like $200 a month for gas, water, and electricity. Still, a 25% savings is $50 a month.

Add these up and you are looking at $1,604. That’s $1,604 month after month after month. I also want to point out that some of these expenses are paid with after-tax dollars as well. For starters, only $750,000 of the mortgage is eligible for the interest tax deduction. And since most family’s state income tax is already higher than the $10,000 tax deduction limit, the entire property tax will be paid with after-tax dollars. If we estimate that a typical Californian pays a marginal tax rate of 35%, a $1,604 a month is like getting a $2,165 a month raise. That’s $25,980 a year!

There are other expenses that could be added to this total too. Most families here are dual-income families so it’s very common to just have someone come take care of their cleaning and yard needs. We are talking about paying $50 for a gardener, $150 for someone to clean the house every two weeks, and maybe another $100 for a pool guy.

At some point, you have to wonder if it’s better for some families to just downsize and have one of the spouses stay at home forever. Sure, that person will have to start cleaning and taking care of the yard. But we are talking about freeing 40 hours a week plus commute time here. You also get to escape the stress of full-time work.

And as an aside, it’s no wonder how the rest of America wonder why we pay so much to live here!

Does this tempt you to downsize? Have you estimated how much you could save by doing so?

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