Guide to Financially Downsizing Your Life and Saving Money

By Alice Garbarini Hurley · July 20, 2022 · 8 minute read

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Guide to Financially Downsizing Your Life and Saving Money

Are you thinking about how to downsize and simplify your life? If so, you’re not alone. Many people are considering how to lower their expenses, ditch some stress, and save more as part of the bargain. Navigating the “new normal” after years in an historic global pandemic has tightened the focus on comforts that got us through: Nesting with family and friends, working from home, shopping local. Paring down the extras to highlight the essentials.

Fortunately, learning to downsize your life is pretty straightforward. From reading books instead of subscribing to an array of streaming platforms to embracing the tiny-house movement, options abound.

You can cut your expenses, which is an important point right now. In a United States Census Bureau survey during the pandemic, 34.4% of American adults reported having difficulty paying their usual home expenses. What’s more, you can put some of the money you save towards long-term goals, and you’ll likely enjoy greater peace of mind.

Read on for advice on how to downsize and simplify your life, including:

•   The financial benefits of downsizing your lifestyle

•   How to live happily with less

•   How to remove non-essential items from your budget

What Does Downsizing Mean?

Downsizing generally means moving from a bigger home to a smaller one, whether an apartment, condo, or house. People usually start wondering “Should I downsize my house?” when they are empty nesters, they realize maintenance is becoming too much work, or they want to lower their housing expenses, such as their mortgage and property taxes.

But the term downsizing can also be about streamlining your life in general, beyond your home. You might opt for a smaller car or a clean-green electric one that doesn’t give you sticker shock at the gas pump. Reprioritizing life could mean phasing out a long commute that takes a toll on mind, body, time, and wallet and working remotely.

In addition, many consumers, whether singles or families, strive to declutter day-to-day life by downsizing. Some are even true minimalists, paring their possessions down to a minimum to free up physical and mental space, plus room in their household budget. Overall, downsizing can wind up improving your financial situation.

Financial Benefits of Downsizing Your Life

The payoff for downsizing your life can help you reach financial goals. Among the rewards may be:

•   Less (or no) debt

•   Improved credit score

•   Reduced monthly shelter costs

•   Lower utility expenses

•   Ability to create a substantial emergency fund

•   Ability to afford travel dreams

•   Knowledge of how to make a financial plan and live on a budget

•   Extra funds to save or invest, for retirement or other goals

•   Economic security

•   Improved credit score

Financially Downsizing Your Life

If you are ready to start downsizing financially, getting rid of excess stuff, and living leaner, take the next step. Consider the following ideas:

Selling Items

If you have items you no longer or never used, chances are, you can sell them. This will free up space in your home and send some cash towards your bank account. Whether it’s a set of silver cutlery you inherited, that exercise bike you no longer use, or brand-new makeup you bought in the wrong shade, why not see if someone else wants to purchase your unwanted items? You could sell them on eBay, Etsy, Poshmark, or other sites. Or try Facebook Marketplace, which can make the process super simpler; shoppers can pick up items from your doorstep.

Declutter by Using Automatic Payments

Part of downsizing your financial life involves easing the time and energy it takes to deal with your money. Signing up for automatic payments (sometimes called autopay) can be a terrific step. Just think, no more billing statements and envelopes to pile up. (It’s kinder to the trees, too.)

Many businesses, from utilities to mortgage companies, offer paperless billing. You can set up automated electronic payments from your bank account. The other perk to this is it helps ensure that you’re paying bills on time, which can boost your credit score. Timely payments are the single biggest contributor to a solid score.

Moving to a Smaller Space

Downsizing your home could have a positive ripple effect on your finances. Relocating to a more compact space or a less expensive neighborhood can save you major money. Beyond your rent or mortgage payment decreasing, any property taxes should similarly declinem as well as maintenance costs. In addition, you’ll have less space to heat in the winter and to cool in the summer, so your utility bills may be lower.

If you’ve been in a place with a home office to get through the pandemic work-from-home mandate, now might be the time to look for a house or apartment that doesn’t include that extra room. If you still need a place to work at times, you might pay a daily or monthly fee at a cowork location. With many companies offering remote workdays now, you might even ask if your employer will cover the bill.

Donating or Giving Away Items

If you are moving to a smaller home or simply want to declutter, you can do so by offering up your extras. In many areas, nonprofit organizations welcome donations of clothing and household items in good condition. Some charities will even take your car, which is immensely helpful when you are downsizing and have a nonworking vehicle to be towed away (free of charge). With any of these donations, be sure to get an IRS tax-deductible donation receipt. That can help at tax time; you might even see a refund.

Some neighborhoods have online “curb alert” sites (search using your town’s name on Facebook) to list items people put out on the curb for giveaway. You could have just what another family needs, from a baby jogger to a cat carrier. It’s a good way to reduce, reuse, and recycle.

Letting Go of Luxury

Sure, we all deserve a treat now and then, but often, the occasional reward becomes a regular thing. From opting for a luxury car, frequent massages and restaurant meals, high-end vacations, or designer clothes, splashing out on purchases can inhibit your ability to save or even afford the basics. It traps you in a situation of living beyond your means and potentially winding up chronically in debt.

Review your credit card and debit purchases to see where you may be overdoing it in your quest for the good life. Is it a weakness for the latest model mobile device or sports car? Does your one-week, lavish summer vacation take you a year to pay off? Do some course-correcting.

Anyone who wants to downsize should seek ways to save money versus overspending. Reorganize and rediscover your clothing, shoes, and handbags so you can “shop your closet” to help curtail fashion splurges. Book an Airbnb off season (seaside towns in the Northeast after Labor Day, for instance) to save money while still having that getaway you crave.

Removing Non-essential Items From Budgets

A key step in downsizing financially is to learn and respect the difference between wants and needs. Ubering everywhere when you could walk or take public transportation is what you want, not need to do. Subscribing to all kinds of food clubs or streaming services: Again, a want, not a need. Look at your spending through this lens, and see where you can economize.

Changing Your Financial Planning to Downsize

Now is the ideal time to review and reevaluate what are the basic expenses of living. These will impact how and whether you hit your financial and lifestyle goals. By reducing some of your expenses (especially high-interest debt, like credit card debt), you should be able to free up funds that can be applied to longer-term goals, whether that means the downpayment for a home, retirement savings, or another purpose.

Here’s another way to look at your money when thinking about downsizing: You may have heard of the 50/30/20 budget rule. This recommends spending 50% of after-tax income on must-haves and must-dos (housing, utilities, etc.), 30% on things you want, and 20% on savings and debt repayment.

When you figure out how to downsize your life, you may discover that you need less than 50% of your income for must-haves in your new chapter. Then you can use the extra funds you have freed up to pump up your savings, squash debt, and include more IRA and 401(k) contributions. This can be especially easy (and pain-free) if you set up automatic transfers to whisk money out of your checking account on payday and into savings. When you don’t see the money reflected in your checking balance, you likely won’t be tempted to spend it.

Managing Your Finances With SoFi

A SoFi high-yield bank account can make it simple to stay on budget with downsizing plans. You can do all of your banking in one streamlined place and eliminate a paper trail, thanks to our website and phone app. And SoFi can help your money grow faster. When you open our Checking and Savings with direct deposit, you’ll earn a competitive APY while paying zero account fees.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.60% APY on SoFi Checking and Savings.

FAQ

What is a good age to downsize?

Retirement age has generally been considered a good time to downsize. Moving to a smaller home when kids are grown can make life more manageable and free up funds to pursue travel and personal goals. However, many people of all ages are embracing “small living” or “the new minimalism” and want to spend and consume less.

Does it make sense to downsize?

While housing prices are high, it can make sense to downsize to a smaller space. You can potentially increase cash flow, lower bills, and spend less on maintenance. Also, given the period of high inflation we have been in, downsizing can free up funds to use on your usual expenses. It’s worthwhile to look at your finances and see how you might economize and gain some financial freedom.

How do you know it’s time to downsize?

If you have trouble keeping up with bills and feel as if you have too much stuff to maintain and manage, it might be time to let go. Paring down your life and costs can be financially freeing.


Photo credit: iStock/lechatnoir

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SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.


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