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.
2. Automate your finances
Downsize your recurring financial tasks — such as paying bills and setting aside savings — by automating them. You will also downsize your stress and save time and money.
For example, you can:
- Put bills on auto-pay: Save money by making late fees a distant memory. Put a little effort into setting up automatic payments with your bank, credit card company and service providers. After that, you’re pretty much free from tending regular bills. Do set up reminders to periodically check on the accounts so a price hike in your phone bill doesn’t put your account in the red.
- Cancel services you aren’t using: Save more money by canceling unwanted subscriptions and memberships. If this sounds like too much work, let a service like Trim take care of it for you.
- Automate savings deposits: Your company’s human resources folks can explain whether you can have a percentage of your paycheck automatically sent to a high-interest savings account. Or, set up automatic transfers from your checking account to your savings.
- Automate retirement contributions: If your employer has a workplace retirement plan, have money automatically diverted from your paycheck to your retirement account. If you have an individual retirement account (IRA), set up automatic transfers from your bank account to the IRA.
3. Downsize your home entertainment
Few recent technological advances offer such cheap fun as streaming entertainment. And as the number of streaming services and plan options continues to grow, so does the number of ways you can downsize your TV and video options — with little to no sacrifice.
For example, you can:
- Slim down your cable TV package: Do you really need 200 channels? Would you even miss them all if you switched to a cheaper package?
- Cut cable and stream instead: “Downsizing” from traditional pay-TV to streaming TV lets you cut out the high cost of cable without letting go of live TV. Among the much-cheaper alternatives are Sling TV, Hulu, Philo and CBS All Access For details on these options, see “4 Ways to Cut TV Costs to $25 a Month — or Less.”
- Get rid of TV: Just think of all the money and time you would free up.
For more no-cost options, check out “16 Ways to Stream Movies and TV Shows for Free.”
Are there areas of your life that you have downsized? What worked and didn’t? Share your stories and tips by making a comment below or on our Facebook page.
Marilyn Lewis and Karla Bowsher contributed to this post.
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