Downsizing for early retirement
The math to optimize the FIRE (Financial Independence / Retire Early) date is pretty simple.
Step 1 - save more (by spending less) while you're working, the quicker you'll get to the lump sum you need to be financially independent, and to retire early if that's what you choose.
Step 2 - spending less once you've retired will reduce the size of the lump sum that you need.
Do both and you hit the sweet-spot to FIRE in double quick time. Not exactly rocket science.
Also in the "it's not rocket science" category is that targeting the biggest items of expenditure will make the biggest difference. For most people, this means housing.
So it's strange that so many people live in bigger houses than they need, and quite possibly have aspirations to upsize further. I was one of those people before I started my downsizing journey. We've just moved into a 61sqm (650sft) apartment.
One month into living in our smaller space, how is it going? Does it feel claustrophobic, do we miss our personal space, where do we put our stuff, and are we living in a mess?
But before we get to our experience, here are a few thoughts about normal house sizes.
What size house do people live in?
This differs significantly from country to country. This information sourced from shrinkthatfootprint.com shows the average new home size in square metres (to get sq ft, multiply the sq m figure by 10.76 - if I was smarter with computers, I'd have figured out how to link to the other graph that I prepared!).
Our new apartment is shown in red, so we're towards the smaller end.
The houses in Australia, the US and Canada are much larger than elsewhere, in fact, double the average house size of the other 12 countries.
Why do we have such big houses?
I Googled this and was going to summarise what I read, but instead I'm just going to write from my own experience.
Status. A big house shows the world how well we're doing, that we're a success. At least that's what we think. I'm sure there is truth in this, but the rationale is very questionable. For me, I've decided it's not sensible, although it took years to get to that realisation, and a lot of money was spent along the way.
We think we need the space. A relaxing lounge, a more formal space, a dining room, casual eating in the kitchen, an office or study, guest bedrooms, multiple bathrooms and multi-car garages. That may sound nice, but research shows that we use only a small proportion of our homes. We think we need the space, but the truth is that we don't use that much of it.
We simply get carried away. We're conditioned by consumerism, bombarded with media and marketing that tell us how we should live, that more and bigger is better. I'm trying to break away from the worst of this, but it's not easy to buck the commercial onslaught.
It's difficult to give a single figure for cost of housing because it differs between countries and generations. Those who got on the housing ladder 30 years ago are probably spending a lower proportion of their take home pay on housing than someone in their twenties.
But 30% of after tax salary spent on housing is often quoted. That's huge. Imagine if this were reduced by 10% - the FIRE date would change by years.
Bigger house = higher purchase price = larger mortgage repayments (or less money to invest)
Bigger house = bigger bills for utilities, furnishings and maintenance
Is the status of a bigger house, or extra rooms that we hardly use really worth the extra money? We get to make our own choices, but I now know my preference is to live in a more modest home with the money saved going towards achieving earlier financial independence.
A half way house?
It doesn't have to be all or nothing. I enjoy watching programmes about tiny houses, but I'm not ready to live in one, and I wouldn't be brave enough to suggest it to Sally anyway.
But there is a middle ground. We downsized in stages from a large house to a moderately sized house, then a slightly smaller apartment and now to our smaller apartment. Looking back, the large house was much too big, and it was something of a lightbulb moment when I realized we didn't use at least half of it.
Living in our 61sq m (650 sq ft) apartment
At last I've got to the bit where I describe how our first month of small apartment living has gone. It's slightly bigger than our starter house that we bought nearly 30 years ago, and less than a quarter the size of our home of 3 years back.
By the way, out apartment is the stone clad section at the bottom - the arrow is perhaps a clue!
So, how do we find living in a 61sq m (650sq ft) apartment:
Does it feel claustrophobic?
I'm surprised, but not at all. The living, dining and kitchen area is open plan which collectively gives a decent sized room, just shared into three different uses. That room also benefits from two large patio doors giving a feeling of openness and a great view to outside which helps it feel much larger.
It's winter now so we're not using the outside space, but in summer our deck will be an extra room, which is a big bonus of having a ground floor apartment.
The bedrooms are quite compact, but as I have my eyes closed while sleeping, that hasn't been an issue.
Do we miss our personal space?
It's early days, but not yet. I'm sitting at the dining table typing this, and Sally is sitting on the other side doing something or other. It's no different from working in an open plan office.
If I go to bed before Sally, I can hear the TV if she's watching it, which has made it harder to get to sleep. It's not a big deal as we normally go to bed around the same time, and I suspect I'll get used to it anyway. If this type of thing is the biggest challenge, then that's not much to complain about.
Where do we put our stuff?
We started by decluttering before we moved, and so only have the things we need. This was OK for me as I don't need lots of possessions, but Sally found it very stressful deciding what not to keep.
For the stuff that we still have, here is what we've done:
First, we keep things organised, and make sure that items get put away after we've used them. I sometimes tidy Sally's things up before she's finished using them, which I guess might be a bit annoying for her - I asked and she says that it is!
Second, we bought beds with under-mattress storage. you can fit a ton of stuff in them, so we now have summer clothes, paperwork, spare bedding and that sort of thing stored there. In fact, we've only used about half the space under the beds so far. There's also some storage in the base of the sofa.
Thirdly, and we're lucky here, we have two small store rooms. They are only around 3sq m (32 sq ft) but big enough to put the washer and dryer in, my bike, ski stuff, suitcases etc. We've bought some shelving racks to keep these organised.
Are we living in a mess?
No. I'm generally a tidy person and I think that's particularly important when living in a smaller space, so we're making an effort to put things away after we've used them. When you don't have lots of stuff it's not so difficult to keep it tidy anyway.
Is it too small to have visitors?
Not at all. Our two grown children visited over Christmas and New Year, so we had 4 of us here without issue. For sure you can't all be trying to cook at the same time, but we managed to cook Christmas dinner without any problem. I just make the effort to keep things tidy and that seems to do the trick.
Having lived in our smaller apartment for a month, do we think it's too small?
It's early days, but I'm convinced not. Living comfortably in this size apartment is more than doable, and if it was a bit smaller then I think it would still be OK.
I think this may be as far as we go in our downsizing. Although the second bedroom is not a well used space, it's nice to be able to accommodate visitors.
Early impression is that we've hit a good balance. We have a home size that's comfortable for the two of us, and works if we have visitors too. It costs less to purchase than a larger home, and the utility and maintenance cost will be lower as well. And that it doesn't take long to clean, well that's just an added bonus.
A different subject - "keeping up with the Joneses"
It's strange how we feel the need to show friends, colleagues, family and even complete strangers how successful we are, and that we think the way to do so is via our spending and possessions. The biggest of which is often our house and car.
Sally used to say that, amongst our friends, we were always the ones with the least. It was a big deal for her when we bought our large house in Dubai, she felt that she'd made it to the same level. We'd kept up with the Joneses.
I'd say that we've both got past that stage in our lives, but I was surprised to see it crop up again recently. This time it was me, not Sally. I say I don't care much about what other people think, but clearly some part of me still does.
Ours is one of five apartments, and the smallest by far. The others are at least twice the size, a couple closer to three times. I worried (just a little bit) that we'd look like under achievers in comparison to our neighbours, and wondered what they'd think of us.
Needless to say, they all seem to be very nice and normal people. Nobody has even remotely looked down at us for having a smaller apartment. Any concerns were entirely in my head and entirely unfounded. It's a reminder that while keeping up with the Joneses is unnecessary, it is part of human nature and something that has to be deliberately guarded against.
To conclude, our downsizing to a 61sqm (650sft) apartment is going well. I don't regret that we had larger houses in the past, but I now realise they weren't really necessary and, if I were to have my time again, I would stick to properties that met rather than exceeded my requirements. And that is what our current apartment is doing - it's meeting our space and functional needs, and fortunately we're loving it, so why would we want anything different from that.
So, downsizing as part of the FIRE journey? It's worth serious consideration, I think it can make a lot of sense.