Passive Income

My wife and I have been attending Financial Peace University for about 12 weeks now. In that time we have come to realize that we do not have to always be in debt, car payments are not the American way, and that if we had no debt at all, we could live like no one else.
In order do this, we have come to the rather harsh conclusion that we have to downsize our house.

We live in an amazing neighborhood that is in a great school district. We have a small creek running through our backyard and nice shady trees lining both sides of the house. The only problem is that the mortgage is about 50% of my take home pay. Dave Ramsey recommends having your mortgage equal no more than 25%. After doing some additional research, I have to say that I agree with him.

Last week I went down to a mortgage broker to see what kind of rates the banks were offering and what kind of payments I could expect by downsizing AND obtaining a 15-year fixed mortgage (instead of a 30-year). The surprising conclusion is that we can get a beautiful house in a great area just outside the city and have it paid off in 10 years. The best part is that by doing this we will actually save a few hundred dollars a month. Talk about a win-win situation.

Now all we have to do is take the next couple of weeks and get our current house ready for sale.

Have anyone ever downsized to save money? Is anyone else considering doing this same thing? I would love to hear about it.
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photo credit: http://www.flickr.com/photos/pwiwe/

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This question has been addressed many times on such blogs as LazyMan, MillionareMommy, The Motley Fool, SmartMoney, Yahoo!, MoneyMonk, and Free Money Finance. There are literally thousands more that are easy enough to find via Google if you want to read more on the subject.

While I can see the value in both sides of the argument, I actually find the enjoyment of owning my own home a lot more valuable than the interest I will pay over the next 27 years. In that respect, I consider my house an asset, but not one that I am counting on to supplement my retirement. I will be including it within my monthly “net worth” calculations, because if I had to sell it, it would have cash value.

As a result, I will be counting my house as an asset, and the mortgage as a liability on my balance sheet. As an accountant, I consider this approach to be the most conservative. In my opinion, doing so represents my financial condition at the end of any one month more accurately.

I will be following the example set by Hank and will be determine the value of my house by performing the following steps:

1. Log into Zillow, Yahoo!, RealEstateABC, Eppraisal, and CyberHomes.
2. Throw out the highest and lowest value
3. Take an average of the remaining three estimates.
4. Include this value as the value of my house (asset piece)

Please let me know what you think about this approach.

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