When experts talk about downsizing, they're usually referring to older Americans trading in their larger homes for a smaller house, apartment or condo that's cheaper and easier to maintain.
In fact, 42% of Americans plan to downsize in retirement, according to a 2018 survey conducted by TD Ameritrade.
But downsizing isn't just for older Americans, says financial expert Suze Orman. It can be a solution for anyone looking to cut down their expenses, even millennials. Although many millennials (ages 23 to 38) are still saving up to buy their first home, the homeownership rate among millennials was about 43% last year, according to ApartmentList.
Many of those millennial homeowners may be struggling with ballooning debt, especially as the coronavirus pandemic hammers the economy and puts millions out of work. If you're in a situation where you're struggling with long-term debt and living paycheck to paycheck without being able to save for the future, yet you own your home, "it is possible that it may be worth your while to investigate selling the home that you have," says Orman, who recently released a new book, "The Ultimate Retirement Guide for 50+."
"At least look at the possibility of maybe selling the home, downsizing and getting rid of your debt," Orman adds.
Keep in mind that your debt really needs to be out of control for you to consider this kind of move, Orman says. Selling your home isn't an easy thing to do. But if "you have trouble because you are drowning in debt" — you have tens of thousands of dollars in high-interest credit card balances or massive outstanding student loans that you're only able to pay the minimum on — that's when you need to think about downsizing. That could mean selling your current home and buying a smaller, less expensive home to reduce your monthly mortgage. Or it could mean unloading your current house and going back to an inexpensive rental.
Of course, downsizing may make the most sense for people who have more home than they need. But many Americans are already living in modest homes. About 19% of home buyers in the U.S. end up compromising on the size of home they want, according to the National Association of Realtors. Plus, millennials look for homes that are around 1,700 square feet — about 300 square feet smaller than baby boomer home buyers, according to real estate data company Clever.
If you're young and don't want to have to cut back later on in life, now is the time to limit your expenses, Orman says. Reducing what you spend on housing may be a way to do that. "When you cut back on things today, you have more money to put into a retirement account," Orman says. The sooner you start to ramp up your savings, the more time it has to accumulate and grow, giving you a better chance of being able to afford a comfortable retirement.
It makes sense to trim housing costs because it's generally one of the most expensive line items in Americans' budgets. On average, Americans spend about $10,000 a year on housing. It makes up about 16% of the typical household budget, according to financial research site ValuePenguin.
Orman says that one key to her financial success isn't just how she invests, but that she's always kept her expenses low so that she could afford to put more money toward her retirement savings and investments. "I had all this extra money that I could then invest, and it would grow and grow and grow over the years. And now it's made a serious sum of money," Orman says.
"The more money you can save, especially when you're younger, the more time it has to compound when you're investing, and the richer you will be," Orman says. Don't waste your money on fancy cars or fancy homes. "Just live with what you need," she adds.
Disclosure: NBCUniversal and Comcast Ventures are investors in Acorns.