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5 Extreme Downsizing Strategies To Help You Retire Early

Millennials may get flack for being hooked on their smartphones, but this generation may be on to something with respect to retirement planning. There's a movement gaining momentum among the younger set called FIRE, or financial independence, retire early. FIRE involves saving high percentages of your income today to create a work-free tomorrow.

Saving does not come naturally to many U.S. households. A 2018 study by Northwestern indicates that one in three Americans has less than $5,000 saved. Even more concerning, about one-third of Americans have no retirement savings at all. Low savings balances, along with uncertainty surrounding Social Security and healthcare costs have many people planning to delay retirement as long as possible.

But not everyone is accepting that reality. Some millennials are adopting the concept of extreme downsizing to enable early retirement. By living frugally and saving half or more of their income, these aspiring retirees are building up savings balances of $1 million or more before they reach their 50th birthday. And that, along with other income streams from gig work, investments, or rental properties, is giving them the freedom to say goodbye to the workforce permanently.

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Can you implement extreme downsizing in your life? It takes time and discipline. To save $1 million, you need to invest $1,234 monthly at a 7% return for 25 years. It only takes 15 years if you can save $3,155. Read on for five ways to slash your household expenses, so you can afford to save for financial independence.

1. Swap the ranch house for a tiny home

Retirees commonly evaluate downsizing as a money-saving strategy. Replacing a big home with a smaller one frees up cash, eliminates a mortgage payment, and lowers the property tax bill. But why wait until retirement to make this move? Say you downsize today and it saves you $12,000 a year in mortgage payments and property taxes. Tuck that money away for 10 years and it grows to $120,000 plus interest. If your savings goal is $1 million, you're more than 10% of the way there.

2. Ride on two wheels instead of four

You can also create a stream of savings by rethinking your transportation strategy. Cars, especially new ones, are expensive. You buy insurance and you pay for gas and oil changes. And then there's depreciation. Swapping out your new car (and car payment) for a used vehicle will eliminate the payment and reduce your insurance. And if you can rely on a bicycle and public transportation, you get rid of maintenance and registration expenses, too.

3. Clean out your closet

How many pairs of shoes do you really need? Most people can manage with three or four pairs to get them to the office, the gym, and everything in between. It's likely you've collected a few extras over the years, along with extra pants, sweaters, coats, and watches.

All of these items are candidates for resale. Take them to a thrift shop for quick cash or try selling your old stuff on Poshmark or ThredUP. Whatever funds you raise should go straight to your savings account.

4. Clean out your garage, basement, and attic

Garages, basements, and attics tend to accumulate things you're not ready to throw away. Old furniture, home decor items, and sentimental knick-knacks don't serve you well when they're hidden away in storage. If you have items that someone else would use and enjoy, plan a garage sale or list them on a resale app like LetGo or OfferUp. You can sell old books and textbooks from your college years on Amazon or to used book stores.

5. Downsizing expenses

You might know the usual savings tricks of canceling cable and gym memberships. Maybe you're making your own lattes and you also slashed your dining budget by learning how to cook. On top of that, you've reduced your heating bill by 10% because your thermostat is turned down to 62 degrees in the winter.

You're already a frugal living guru. Are there still opportunities to cut back expenses even more? You bet. Here are five more strategies to consider.

Cancel your internet and cable at home

You could rely on free Wi-Fi at the library or even at the nearest McDonald's to keep up with your email. Switch to reading books, from the library of course, or playing card games in the hours when you'd normally watch television. Trade cable in for one or two low-cost streaming services, if you haven't already.

Switch to a low-cost cellphone plan

Republic Wireless has an unlimited talk and text plan for $15 per month, with no contract required. For $5 more, you can add 5GB of 4G LTE data.

Unplug every device that's not in use

Toasters and coffee pots use electricity even when they're not turned on. Duke Energy estimates that unplugged devices account for up to 20% of your electricity bill.

Switch to tea and reuse your tea bags

Tea, on the whole, costs less than coffee -- especially when you use reusable tea bags.

Capture the cold water from your shower

Don't waste that initial blast of cold water that comes out of the shower. Either hop right in and bear the cold or keep a bucket to collect the water. You can use it for plants and pets.

Small steps for big savings

Downsizing your home is a big win, but being consistent with smaller lifestyle changes is also impactful over time. The next time you see millennials bringing their own snacks to trivia night at the bar, give them a nod. They're probably chasing FIRE, after all.

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