Downsizing. What exactly does it mean? Less house, fewer bills, less stuff? Yes, yes and yes.
Many think of downsizing as moving to a smaller house after the kids have grown and gone. And it is. But let’s not stop there. Downsizing makes sense in other ways, too.
Following are other areas of life where downsizing can yield serious financial savings, not to mention save you time and stress.
What would you love to do with that money? Retire sooner? Retire richer?
1. Downsize your transportation
Rethinking how you get around can make a powerful impact on your financial life. Car payments and upkeep suck up an oversized share of our budgets.
It costs an average of $8,849 per year to own and operate a new car, according to AAA.
What’s a “prudent” amount to spend on car payments? The experts at Edmunds.com recommend spending no more than 15% of your monthly take-home pay on car payments. If you lease, keep monthly payments at 10% or under, they add.
But, wait. There’s more: Fuel and insurance typically eat up another 7% of take-home pay. In total, you can expect to spend 22% of your income on a car, Edmunds.com says.
Ask yourself: Do you want to spend nearly a quarter of take-home pay on your vehicle?
Instead, you can:
- Ditch one car: If your household has more than one vehicle, get rid of one.
- Stop using cars: Use a bicycle, walking, public transportation and ride-sharing services.
- Use your car less often: Use other modes of transportation as often as you can. You’ll save on gas and wear and tear, and you might qualify for a car insurance discount.
- Buy used: New vehicles can lose more than 20% of their value after just 12 months, says CarFax. In each of the following four years, they lose roughly another 10%.
- Stop leasing: Pay off a car and then enjoy years without car payments.
If nothing else, at least “downsize” to a less expensive car insurance policy. This is easier than you might think. The best ways to quickly put a big dent in your car insurance costs include:
- Shopping around: Comparison shop annually to get the best deal. This doesn’t have to mean calling around to insurers for quotes. Using an insurance search engine like The Zebra will take all the work out of comparison shopping.
- Raising deductibles: “This is the simplest and fastest way to save on car insurance,” writes Money Talks News founder Stacy Johnson in “The Complete Guide to Getting the Best Possible Deal on Car Insurance.”
- Reducing coverage on older cars: For example, you should consider dropping comprehensive and collision coverage.