Monday, December 15, 2014

Downsizing for Flexibility

As I said in my last post, for years I’ve kept a record of how much money we spend each month and each year. It includes categories, which is very helpful because you can see which categories are becoming too large and eating up too much of your money.

In our case, it was obvious which category was becoming too large, and its growth was beyond our control: housing.

The irony here is that we had paid off our house several years earlier. But the property taxes had been going up from 5-10% annually, and were approaching $600 a month. My husband’s business was declining, so the bulk of our income was shrinking. Once he had to close the business, how would we pay nearly $7000 a year in taxes? (Since he’d worked in that industry for over 30 years, he wasn’t trained to do a different high-paying job; $10 an hour at Home Depot was not going to be enough to cover our expenses.)

We didn’t want to risk losing our paid-off house because we couldn’t pay the property tax, so the issue of downsizing finally became very real for him as well as me. We had to find a cheaper place to live; once we did so, we could figure out the income end of the equation.

Downsizing wasn’t an easy decision, even though it was an obvious one. It meant moving away from nearby family and friends because we had to go some distance to find housing that we could afford in an area that we knew and liked. But doing so gave us a lot of flexibility in terms of figuring out what to do next.

If you’re in this position, or suspect that you are, you’ll need to crunch numbers even though you already know you need cheaper housing. You need to find out just how much money you spend each month vs. how much you earn; then you can determine the number that qualifies as an affordable housing cost for you.

It’s possible that you can find more affordable housing nearby. If housing costs aren’t exceptionally high where you are, you may be able to go from a big house to a smaller one, or from a house to a townhouse or condo.

Another option is renting. That’s what we did, and I must say we enjoyed the break from homeownership. Renting is also a great way to buy time while figuring out your next step.

Whether you buy a more affordable home or rent one, trying to put yourself in the black (or stay there) is always a good thing. Earning less than you spend is the only way to find financial peace; it’s worth whatever changes you have to make to your lifestyle.

Making those changes is where flexibility comes in. Releasing yourself from high costs gives you the flexibility to move anywhere, work anywhere, live anywhere. As you consider the possibilities, you realize that downsizing isn’t just about finding a cheaper place to live. It’s about changing the path that you’ve been on for years to do something different. I share stories in my eBook about people who have been able to pursue their dreams once they realized they had to downsize their lives.

So many people find themselves trapped in order to maintain their lifestyle. By downsizing, you’re no longer tied to one way of living. Even if your housing costs aren’t climbing like ours were, or if they are but you can afford them, downsizing might let you switch to a career you like better that pays less, or move to an area where loved ones await.

The flexibility that lets you consider such possibilities is a wonderful by-product of downsizing.

Next: Freedom

Monday, December 8, 2014

Downsizing for Financial Peace

Freedom…Flexibility…Financial Peace

Though I put those reasons for downsizing in the title of my eBook, they didn’t occur in my life in that order.

The freedom part had been an ongoing issue. With a big family in a big house, and despite organizing and donating things to charity over the years, there was still a ton of clutter in our house, and I never seemed to find time to deal with it. But it weighed on my mind daily, and I sometimes dreamed of waking up to find most of it gone.

The flexibility part did not come into play until much later, and it was actually the financial peace part that caused the entire downsizing episode.

I knew we would have to downsize a few years before we actually did so. I told my family about it, but they either didn’t believe me or didn’t want to believe me. But I knew.

How did I know? And how can you know if you’ll need to downsize in the near future?

It’s all about the bottom line. You have to know how much you spend, how much you earn, which number is larger, and which way the trend is going. It’s really that simple. But it takes effort to figure out the first part, how much you spend. Not a lot of effort, but regular effort.

For many years, I’ve kept track of what we spend in a notebook. (Younger people not so set in their ways might want an app for this, or even just an Excel file.) I round off amounts to the dollar, and categorize as I go along. I use one sheet of paper for each month, and I write down our expenditures under the following categories:

Property Tax
House Insurance
House/Yard Costs
Health Insurance
Entertainment/Out to Eat
Car Insurance
Car Gas
Car Expenses/Repairs
Disability Insurance
Life Insurance
Cell Phone

At the end of each month, I add up the numbers to get a grand total of what we spent that month. And at the end of each year, I add up the monthly numbers to see not only what we spent in each category that year, but how much we spent for the entire year.

You can imagine how much my husband enjoys hearing how much we spent, given that he prefers not to think about how much anything costs him.

But I’ve always felt that it must be done, and by doing so year after year, I had a good idea of where we were at financially, and where we were headed. By the year 2004, I could see that despite our debt-free status, we were spending more money than we earned (the difference was coming out of savings). To make matters worse, our annual income was declining, because my husband’s business was slowly dying.

For me, it was like being on a hill, watching a car coming from the north and a car coming from the south heading toward each other on a one-lane road; you just knew what would happen very soon.

As I said, my insistence that we were going to have to downsize did not make me popular. But it gave us time to talk and strategize about what we might have to do, and as time went on and the numbers showed more clearly that we were spending more than we were earning, even my husband came to see that something would have to be done. To live in denial would only make things worse.

Besides, we had experienced many years of earning more than we spent and saving the difference. That’s where we found financial peace. And we wanted to get back to that place.

Next: Flexibility.

Friday, November 28, 2014

It's Black Friday.....

...and I'm glad to be snug in my cozy little house. I also slept well last night while others jostled for position outside of big-box stores and malls, looking for those great Black Friday bargains.

I guess I've always loved sleep more than shopping, because I've never gone out on Black Friday. Seeing video of people fighting over gigantic TVs doesn't exactly encourage me to get out there, anyways.

But the main reason I don't go shopping on Black Friday is the same reason I shop very little these days: when we downsized, I got rid of so much stuff, and I don't want it back!

I like open floor and counter space, closets that are only half-full, drawers that close easily. I've found that if I don't go shopping, I'm not tempted to bring things home, things I really don't need.

As for Christmas gifts, I'm trying to give gifts that don't create clutter; I'd hate to think my family members might feel stuck with something they don't really need just because "Mom gave it to me and I'll feel guilty getting rid of it." That's how people end up with houses full of stuff.

So I'm getting them gift cards as well as consumable items like gourmet food, items that they'll enjoy but don't clutter up their homes. The fact that I can buy these things without leaving home is a bonus!

Tuesday, November 4, 2014

Collectibles Usually = Clutter

I was recently shopping in a thrift store when I happened to see a stack of Norman Rockwell collector plates. I remember seeing them advertised in magazines back in the 1970s and 1980s, and they weren’t cheap. In fact, I think people could pay for them in monthly installments. But now they’re only $3 each at the thrift store.

Then there are Hummel figurines. My elderly relatives think their Hummels are worth hundreds of dollars each, because they paid a lot for them back in the day and they assume that prices have only gone up since then. I don’t have the heart to tell them that most Hummel figurines sell for $15-30 on eBay nowadays.

And of course anyone over 20 remembers what happened with Beanie Babies. They became popular and people bought and sold them for outrageous prices. Now you see them for a buck each at garage sales.

The fact is that once-collectible items often become clutter that’s hard to get rid of, either because you paid so much for them or because you’re aware that they were once valuable and you feel guilty getting rid of them. Neither of these are good reasons for keeping this stuff, especially if it’s getting in your way.

Consider that any items that were once highly sought after are probably not worth as much now because there are so many of them in existence: their popularity doomed them to eventually become commonplace, just because of the sheer quantity of them that were created.

Nevertheless, it’s still hard to get rid of such things.

The key, I think, is to make a strict rule to only keep items that you truly love. They may have once been collectible, or they may be something no one else wants. But if you dearly love them, they can stay. And if you don’t love them, they need to go. You must be picky, picky, picky, if you want to live in a clean, uncluttered and lovely environment. It’s the only way.

Monday, October 13, 2014

Creative Retirement: Mortgage-Free Means Freedom

Wow! I had no idea so many people retire owing money on their homes; according to this article, nearly a third of them do. That's up from 20% in 2001.

I could never do that. To me, having a mortgage is like having your ankle tethered to the ground. Your options are so limited. Besides, those of us (and I know we're legion) with no pension or big fat retirement account waiting for us consider having no house payment to be a huge asset in retirement.

When you retire with no mortgage, the traditional largest monthly expense just isn't there. It makes a huge difference in your bottom line, and gives you peace of mind that you'll always have a roof over your head. And should you decide to sell your house at or before retirement (a wise move, in my experience), you now have a nice chunk of change to work with. You can:

  • Pay cash for a more suitable place in a different area.
  • Buy something cheaper, leaving money for other things you need.
  • Rent for a year or two, keeping your cash in reserve while you investigate your options.
  • Buy a small used RV and travel for a while, leaving your stuff in storage until you're ready to put down roots again. (When, if you're lucky, you can sell the RV for not much less than you paid for it.)

Oh, the things you can do when you don't have a house payment anymore!

Now I understand that mortgage rates are incredibly low and that you can probably earn higher returns in the stock market, IF you have the stomach for it these days. But I'm no gambler. I'd rather have zero debts so I know for certain that I owe no one anything, than hope that I'll make a greater return in stocks than I pay in interest for my mortgage.

That's why I've been mortgage-free for the past 12 years, and I'm not even retired yet. How about you?

Monday, September 29, 2014

New Small Houses for All Ages

Recently I learned about a home manufacturer who understands that these days, people want attractive, affordable housing.

Clayton Homes offers small, efficiently designed manufactured homes for those who want smart design at a modest cost. Whether you're just starting out or thinking about retirement, an efficiently designed home for around $80,000 may just fit the bill.

Check out this brief video to see the innovative ideas this company has. While the video is aimed at younger people, a home like this would also be great for those retiring on a budget. Clayton's Home of Tomorrow is the perfect antidote to the McMansion!

Monday, September 8, 2014

Wasting Our Youth on Chasing Stuff

As others are discussing, my memories of my college years involve living simply (though not by choice) and loving it. I had no car but traveled most places by bike or on foot, with an occasional bus ride thrown in for good measure (Rides were a quarter and transfers were free). Entertainment involved going to school-sponsored movies for 75 cents and splitting the $5 special at Burger King (two Whoppers, two fries and two drinks, as I recall) with my boyfriend. I also spent my free time socializing, reading for pleasure and sewing. Good times.

Some of the old folks I know live similarly. They may not drive anymore, so they walk or take the bus. They don’t buy much in the way of stuff, either because they can’t afford it or they don’t really want anything. But they read and cook and relax and enjoy their loved ones while living simply.

Why is it that we know how to enjoy life when we’re young and when we’re old, but in between we get caught up in stylish clothes and fancy cars and impressive houses and pricy vacations and technological toys, not to mention all the work (and time) it takes to pay for those things that we think we must have? Why do we exhaust ourselves by chasing a certain lifestyle right in the prime of our lives?

Wouldn’t it be wiser to live simply in those in-between years so we can relax and enjoy our lives while we’re (relatively) young and (relatively) healthy?

That leads to one more question: If I had to do it over again, would I pursue the big houses and the new cars? 

I’ll be honest: I’d have to answer yes. Speaking only for myself, the pursuit of “new” and “big” is something I just had to outgrow. Now, in my 50s, it looks like a waste of youthful energy to pursue such things. But at the time, it was what I wanted.

Sure seems silly to me now, though.