When you look at your budget, what is your largest monthly expense? For most people, that would be your cost for housing.
Whether you own a house or rent an apartment, that monthly payment going to your mortgage lender or landlord can take a big chunk out of your paycheck.
Americans spend on average $18,886 a year on housing, or $1,574 a month, according to the Bureau of Labor Statistics.
Most personal finance experts recommend that you only spend about 25 percent to 30 percent of your monthly income on housing. Bankrate chief financial analyst Greg McBride cites 28 percent-30 percent as an appropriate ceiling on housing and says “anything above that is a red flag that you may be stretching.”
If you are spending a significantly higher percentage on housing, that can seriously inhibit your ability to achieve many of your financial goals like saving for retirement, paying for your children’s education or taking a well-deserved vacation.
And once you sign those mortgage papers or year-long lease, your costs are fixed for a designated time period.
So, what can you do to try and lower your housing costs? The hard part is that the things you have to do to save the most require lifestyle adjustments like moving or sharing your living space.
If you are looking to cut your housing costs, the first thing you should consider is how much space you really need. Is downsizing to a smaller, cheaper place an option?
Depending on where you live, moving from a three-bedroom apartment to a two-bedroom unit could cut your rent by $300 or more, NerdWallet reports based on data from the rental site Abodo.
If you own a house and have built up some equity, consider selling and moving to a smaller house or condo. You could potentially cut your mortgage payment with a less expensive home depending on the mortgage rate you can qualify for. If you own your home outright you can use the profit to buy your next home with cash or significantly lower your overall mortgage debt.
Before making the decision to downsize be sure to consider hidden costs like home repairs, selling costs, moving expenses, furnishing your smaller space, storage fees, condo or association fees.
To get a general idea of your potential savings use this downsizing calculator from the Center for Retirement Research.
Rental site Abodo has a helpful checklist on “How to downsize from a house to an apartment.”