Somewhere along the way, the American dream has been reimagined to include a whopping 3,000 Sq. Ft. of vanity space shared by no more than two people. We are not after a merely nice home. We demand the SUV of homes. The average number of people per household is declining while the average size of houses is dramatically increasing.
It is as if we have determined that 1,000 square feet per person is just not enough room to stretch out. It has become our birthright to demand more space for doing less with. This wasteful insanity is getting worse, not better. But it does come at a price. Here are a few reasons to start the project of downsizing now, before you have to:
If all of your assets are tied up in your home, you will have less to work with when there are emergencies to deal with. All too often, it is an unexpected health situation that transforms us from riches to rags. CNBC points out a study showing that medical bills are the leading cause of bankruptcy.
Against such an eventuality, there is at least the safety net of a reverse mortgage. You will want to take a close look at a guide to reverse mortgages to understand how they work. It is essentially an option that allows you to stay in your home and receive loan payments that you never have to pay back as long as you continue living in the home and satisfying the contractual details of the loan.
Once you understand how it works, you will realize that it is not magic and it is not for everyone. But it can be the perfect solution if you need emergency funds and all of your assets are tied up in your house.
Downsizing frees up your assets by reducing mortgage and property tax payment and increasing the money you have for savings and investments. It is always a good time to increase savings and investments.
Not everyone retires as a matter of choice. Some retirements come suddenly due to health. Some are due to burnout. Some are due to corporate downsizing. Whatever the reason, you are going to need a strategy for managing unexpected retirement if it happens to you.
We have a tendency to create long-term debt for ourselves as if we will always be bringing in our current income. We extend ourselves to near the maximum amount. Then are shocked when our financial situation changes. By downsizing now, we are likely rightsizing and correcting the overextension with which we find ourselves after an untimely retirement.
Rightsizing for the Situation
As indicated in the previous section, it is more about rightsizing than downsizing. A family just starting out may not need a 4 bedroom 3 bath 2 story home on 6 acres. That is not to say that you will never need this arrangement. It is about getting the right sized house for your current and near future needs.
Every stage of life requires a reassessment. Once the kids have left the house, we might find ourselves wondering what to do with the extra bedroom. That might actually be a perfect time to downsize to something more right sized.
That 2 story home may seem like a good idea when you are athletic and healthy. But a knee injury can make that flight of stairs a lot less appealing. Buying a house with three kids in mind might not make as much sense once you decide that one child will be more than enough.
We have to spend less time and money on the home of our dreams, and focus more on the home of our reality. The reality is that emergencies happen. Unexpected retirement is an unpleasant reality. And the right size home for two people seldom matches childhood fantasies.