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Money Saving Idea #2 – Downsizing

A few articles back, I posted my first money saving idea, which was to use cash for groceries in order to track our expenses better. This week I wanted to talk about something that has been in the works for the past month that will finally come to fruition about a week from now.

We have rented out our house and are downsizing to an apartment!

Before any congratulations or bashing begins, read the rest of the article to see our reasoning behind the move.

The Cost Of Owning Our Home

Our current mortgage for a 3 bedroom, 2 bath house with a pool is $1,400, and with all of our other expenses we are only left with about $500 a month to save, spend, or invest. This is even after cutting back on our monthly expenses like cable TV.

Other costs associated with the house include the following:

• Utilities – $55/month
• Electricity – $150-$200/month
• Gas (We live slightly far out) – $250/month
• Lawn Service (I do this myself as of now) – $0/month
• Pool service (Same here) – $0/month
• Maintenance – $100/month

This brings the total cost of owning the house to about $2,000 a month.

Downsizing To Save Money

Here is a breakdown of our living costs at our new 2 bedroom, 2 bath apartment:

• Rent – $765/month
• Utilities (Included) – $0/month
• Electricity – $50-$75/month
• Gas (Closer to work, friends, and stores) – $200/month
• Lawn service – $0/month
• Pool service – $0/month
• Maintenance – $0/month

This brings the total cost of renting our apartment to about $1,050.

We are renting the house out for $1,500/month, and the extra $100 will go towards lawn and pool maintenance. We are basically breaking even on the house, but will be able to save an additional $900-$1,000 a month.

This may not seem like a lot to some people, but the beauty of the plan is in the goals we have set. We owe $644/month in auto loans. By putting some of the money we save towards paying off those loans faster, we will be able to eliminate our auto loan debt within a year and be able to save an additional $700 (insurance will be cheaper) a month on top of everything else. Can you imagine what you would do with an extra $2,200/month?

After the auto loans are gone, we have the option to pay off the mortgage at an accelerated rate, or at least enough of it to eliminate the $120/month PMI payment, which would reduce our mortgage to only $1,280/month. We may decide to do that, or we may go another route which would be to save money for a substantial down payment on our dream home.

We have our current house in case we need to move back, and if we manage to save enough money for a new house, we’ll be able to continue renting the first one until housing prices go back up.

The worst that can happen is that renting doesn’t work out and we move back to our first house and continue making our monthly payments until we figure something else out.

The best case scenario would be that we keep our current house, eliminate our debt, and purchase a new home before housing prices go back up. If and when they do, we can sell the first house to completely pay off the new one, or continue renting it until it too is completely paid off.

It isn’t so much about saving the extra money from downsizing, but more about freeing that money up to pursue other avenues. There are plenty of things we can do with the extra cash including:

• Upgrading the house
• Putting it into savings
• Using it to grow our new business
• Investing it

The point is that it opens up many options that were not there before, giving us more freedom to make lifestyle improvements sooner rather than later.

It may seem a little complicated, but we have thought it through, and in our situation we feel that we have all of our bases covered no matter what might happen.

Downsizing isn’t for everybody, but if you are in a place where you can make it work, you can literally save yourself years of earning and saving money.

Have you ever downsized your home or belongings in order to get a head start on the rest of your life?

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