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18 Oct 2012

HOME DOWNSIZING MAKES SENSE

Where I live, many people in their 30s and 40s live in humongous homes with all the extras of luxury living, plus what is commonly known as domestic quarters. Domestic quarters is a studio apartment attached to one's house, to be used by the family's housekeeper. Most modern homes have this kind of a useful facility plus a number of other special use rooms, like gyms, home theatres, etc. Its gorgeous houses in golf estates, except, owners never get to live in them. They think they do, but in reality they dont.
Home downsizing makes sense - image via
 This is how we let our homes not only sit on our money, but gobble it too:
An average couple in their late 30s to 50s will likely be working and commuting a bit far on a daily basis. They probably spend 2 hours on the road, to and from work. They drop their kids at school on the way to work every weekday. The kids will attend what is known as aftercare (after school care), where a teacher owning that kind of business will keep the kids, give them food, and help them with homework. In the early evening the parents pass by aftercare to take the kids home with. The family is probably home by 7pm. They prepare dinner (if they don't have a cook/domestic help that also cooks). In no time they are all in bed, only to go through the same routine the next day. NB: They sleep, wake up, eat, leave, come back, eat and sleep in this house.

This is different on weekends because this couple is doing some shopping, attending to friends' weddings and functions, dropping kids at their friends' birthday parties and trying to make their gorgeous home comfortable and more liveable. There is a lot of money involved in the weekend activities. Between gift shopping, clothing shopping, furniture upgrading, dinning out, meeting friends for coffee and movies, going to car wash, this couple will likely go through 25% of their income in one weekend. They will be very happy doing the home maintenance bit because its helping boost the value of their investment. The home they are convinced they live in. This couple will retire when the time comes, likely in their 60s. Its then that they will be forced to downgrade, to free some of the home equity for their living expenses. This makes them happy because the value of their property has now doubled from the initial price if they are in a perfect timing of the economic cycle. 

This couple worked so hard to blow their income mostly on a house they hardly ever lived in, to only NOT enjoy it when their time to retire comes. I get it, home downsizing makes sense when one's children leave home. It makes sense when one is in the retirement age and cant keep up with the high cost of rates and taxes. But living in a modest, low maintenance and affordable home could be making better sense when this couple is younger and working outside the home. Why spend this much portion of your income at the peak period of your career on such an under utilized and under performing piece of investment? But we do. And we are more likely to upgrade to a bigger and much expensive home with salary increases. The lifestyle inflation is usually higher than the salary increase. But that lifestyle inflation doesn't necessarily have a positive effect on the family happiness. There could even be an inverse relationship between lifestyle inflation and happiness.

We were in our late 20s and early 30s when we moved into a suburb home with a huge garden and an irritating swimming pool. Our home was not expensive because of the area factor, but the maintenance of the space we had was overwhelming.We moved to a smaller townhouse after that house, and a slightly bigger one later. Life was simpler and the swimming pool stress was gone. My love for all things beautiful keeps catching up with me when I visit my friends' luxurious homes. I then remind myself that we made a choice which works perfectly for us. We prefer to have more than one house instead of spending all our cash on just one. That way we have the rest of the houses rented out and giving us some "passive" income. This proved to be the best for us. We can both stay at home and live on our rental income if we so wish. We would have invested that money on the stocks too to get good dividends and some capital gains.

Don't you think home downsizing makes sense for most young people?

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