5 Areas In Your Life That You Can Financially Downsize

piggy bank with a beltWe all try to learn how to budget and save money. But how about taking that one step further? What do you say about opting to financially downsize some areas in your life?

The goal of downsizing financially is to lower your monthly expenses so you can free up a portion of your money. Despite the seemingly improving economic situation, we need to stop living the way we did in the past.

Compared with other countries, Americans are some of the most excessive spenders. For a national economy to be 70% reliant on consumer spending, you can very well assume that people will be encouraged to make purchases all the time. Consumerism is deep rooted in our society that spending beyond what we can afford is deemed normal.

That should no longer be the case. You want to financially downsize to erase the spending habits that seems to be the norm in our society.

Why do you need to consider downsizing your finances?

According to the data shown on TradingEconomics.com (March 2014), the personal income of consumers rose by 0.3% on January 15, 2014. It is considered an improvement from the last data that only got a 0.02% increase.  The spending also increased by 0.4% by February 28 as opposed to the 0.1% the previous month. The savings, on the other hand grew by 3.9%, but it was not an improvement when compared to the 4.3% growth of the month before that.

As the spending and income increased, the savings did not. It is not a good sign for the financial habits of the average Americans.

These statistics give us more reason to believe that we are in need of financially downsizing our lives. We need to cut back on the excess that we got so used to. In most cases, what we thought was a necessity is actually already a want. A home is a need. A big house is a want. Clothes are a need while designer outfits are luxury items.

Of course, financially downsizing is easier said than done. If it is the norm, it means we got so used to it already. It is quite difficult to get rid of a habit but given the right motivation, you can make it happen.

But what reason will be strong enough to motivate you to change your lifestyle to financially downsize?

  • To pay off debt. The NewYorkFed.org reported that the overall household debt grew by $241 billion by the end of 2013. The increase was primarily because of housing loans ($152 billion) and followed by student loans ($53 billion) and auto loans ($18 billion). That is quite a hefty debt to get out of. If you are among the Americans who took on more debt last year, you may want to consider cutting back on your expenses to help increase your debt payments. That is one motivation for you to financially downsize.

  • To afford an early retirement. Another reason to downsize your finances is when you are force to go into an early retirement before you are ready. It can either be because of job loss or a sickness. To survive on a small retirement fund or to rely solely on your Social Security Benefits means you have to extremely lower your monthly expenses.

  • To save up for a financial goal. You can also reach any financial goal faster if you opt to financially downsize now. That will free up money to allow you to save up and finance a future goal.

  • To change a way of life. For some people, it is enough for them to know that their excessive lifestyle is not financially healthy anymore. This realization can prompt them to turn away from consumerism and adapt a more frugal lifestyle. In some cases, this mindset change is better than having debt or saving goals prompting you to downsize your expenses.

There may be other reasons that you can relate to when it comes to financially downsizing. Whatever it is, you may want to hold on to it because once you start to financially downsize, you need to keep yourself from turning back.

5 areas in your financial life that you can reduce

If you have decided that you want to make this change in your life, here are 5 areas that you can downsize to help reach your goal.

Downsize your home.

Probably the biggest area in your life that you can downsize is your home. If you haven’t heard about the Tiny House Movement, you may want to start reading about them. You will find a lot of stories about people who used to live in a 1,000 or 2,000 sqft house and now are living a debt free life in a 400 sqft home. Sometimes, it can even be as small as a 100 sqft home. Since their home is very small, their utilities have gone down exponentially. According to the Consumer.FTC.gov article about saving on home expenses, more than 50% of energy costs go to heating and cooling. If you have a smaller home, this is one expense that you can save on. Not only that, the smaller the home, the more inexpensive they become – at least, that is the general idea.

Downsizing your car.

Another option is to give up your expensive car for a more durable and cheaper car. You want to make sure that you consider the other costs of owning a car. This includes gas and car repair expenses. You want to lower your expenses by making sure that these will not cost you a lot. Some people go to the extreme by giving up their private vehicles altogether. A healthier alternative is biking to work. Or you can carpool with someone who lives near you.

Downsizing your food budget.

This is for both your food and grocery budget. There are many ways you can cut your food bill. You can opt to buy once a week or month so you can save more when you buy in bulk. Not only that, you get to save on the transportation costs. You also have to opt for generic brands in most of the products you use at home. In most cases, they end up giving you the same quality. You can also downsize by planting in your garden – at least if you have one. Even the most basic herbs and spices can save you some cash.

Downsizing your entertainment spending.

This will depend on your hobby of course. Whatever you love to do will always have a cheaper alternative. If you love going on outdoor adventures, you do not have to go further than your local park. The public beach will also give you the same access to the sun, sand and sea. If you love watching movies, you can borrow from the local library. Your weekly dinner date does not have to be in a restaurant. You can grab a blanket and basket of food, drive to a scenic location and spend time with your loved one there. Or you can do it at home. When hanging out with friends, just invite them over and ask them to bring a dish or two that you can all share. There are so many options for you to do the things that you love without it costing too much.

Downsizing your debt.

Lastly, you want to think about how you can financially downsize your debt. Your debt payments, especially the interest rate is eating up your limited resources. You want to make sure that you will keep your credit card spending down. Also, you have to be very careful when you take on big loans like a home or car loan. Consider your other options before you put yourself in debt. Considering your pursuit of downsizing, you need to keep your debts down. If you can manage it, just keep yourself debt free.

To financially downsize may be tough but under the right conditions, it can be your saving grace. Try to think it through and identify the things in your life that you can cut back on.