More is not necessarily better, even in finances.
With the economy having trouble, many financial experts are recommending downsizing as a way to save money. I would take it a step further and argue that it's one of the quickest and easiest ways to build
While the term "downsizing" has a negative ring to it due to the connotations of people losing their jobs and the image that you're being forced to give up more for less, in reality it should be viewed as simply learning to buy the correct size that fits your needs. The only reason that most people need to downsize is because they have always bought more than they needed in the past.
Here are a few examples of why most people should downsize:
Your house is too big.
The conventional wisdom when buying a house is to buy the biggest house that you can afford. As the housing crisis is making clear, many people took this concept a step further and bought houses even bigger than they could afford, thinking that it would be a good investment. They are paying the price now for this ill-fated assumption. If you want to be wealthy, you should be looking for a home that fits your needs.
Take Warren Buffett. Even with a net worth of $62 billion, he lives in the same house in Omaha that he bought in 1958 for $31,500. Most people with far less money would have continually upgraded their home as they earned more, whether they needed to or not. Buffett's house meets his needs, and therefore he sees no reason to move. You could greatly improve your finances by following his example.
That McMansion that makes you appear rich will make it a lot more difficult for you to become wealthy than if you had chosen a smaller place that fits your needs. Huge houses keep you in debt by raising your monthly charges as you spend years paying off the mortgage. This inflates the house's true cost well above the price listed on the contract.
Having a lot more house than you need also drains your finances in numerous other ways beyond the mortgage payment: taxes, upkeep expenses, furnishings, utilities and insurance, to name just a few. All this extra money saved with a smaller house can go toward investment accounts to build your wealth.
Your car is too big.
Many people have recently learned the wisdom of downsizing their vehicles since the cost of gas now sits well above four dollars a gallon. As with housing, bigger doesn't mean better when it comes to cars. There are plenty of high-quality cars that are economical and environmentally friendly.
When choosing a car, you should seek out a car in the smallest class size that will meet your everyday needs. In addition, understand the
rather than just the sticker price and gas mileage.
Purchasing a car that fits your needs and costs less to maintain and run will mean you have more money that can go toward investments and long-term savings.
You have too much stuff.
One of the main reasons you can't afford to buy some of the stuff that you want is because you have bought a lot of stuff that you don't need. Take a few minutes and look in your storage areas and all the things that are sitting there that haven't been touched in years.
You have way too much junk, and it's costing you
. To make matters worse, it's probably one reason you are living in a house that is bigger than you need.
You may even have so much junk that you are paying to keep some of it in a storage unit, which has you thinking that you may need an even bigger house.
It's estimated that 80% of the stuff in your house are things that you never use. Get rid of the junk that you don't need or use, and you will see that you need a lot less space and things than you imagined. Take this a step further and learn to buy only those things that you really will use and not only will you save yourself a small fortune, you'll be able to afford many more of the things that you really do want. Take the money you save and place it into a Roth IRA instead of into more stuff gathering dust in your closets and you will be building wealth much faster than you ever imagined.
You eat too much.
If you are an American, it's likely that you eat too much -- and there's a one in four chance that you're obese, according to a recently released
At the same time, you throw out a lot of the food that you buy. The average family of four throws out approximately $600 worth of good food every year, according to Timothy Jones, in a University of Arizona study. The study says 14% of food expires or is never taken out of its package.
Downsizing your food means learning to eat healthier portions and better quality food. It may first appear that you are spending more since you will be getting less food while still spending about the same amount of money, but you will reap the cost savings and benefits by being healthier.
In the long run, not only will you have less health problems, you will miss less days of work and generally have more energy, which will all contribute to building more wealth.
By downsizing to what you really need, you can save a significant amount of money that can be used for long-term savings and investing. Learning to buy what you actually need, rather than the most you can get, is one of the easiest ways to find the money needed for creating long-term wealth.
Jeffrey Strain has been a freelance personal finance writer for the past 10 years helping people save money and get their finances in order. He currently owns and runs SavingAdvice.com.