4 Things You’ll Regret Downsizing Just To Save Money
Written by
Cindy Lamothe
Edited by
Jenna Klaverweiden
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Living a frugal lifestyle is one of the best ways to build wealth. But there are certain things you should never cut corners on. For example, you’d never want to sacrifice your safety and security in the name of cutting costs.
Below are some things experts say you’ll regret downsizing or cutting costs on just to save money.
Home Insurance Coverage
“I would caution against reducing insurance coverage to cut costs,” said Griff Harris, certified insurance counselor and president of Griffith E. Harris Insurance Services.
Harris said he’s seen many clients regret that decision after suffering a loss that exceeded their reduced coverage limits. “Insurance is meant to protect your assets in an unforeseen emergency, so reducing it to save money often ends up costing far more in the long run,” he explained.
Paul Schneider, insurance expert and president of Schneider and Associates Insurance Agencies, emphasized the same. “The risk of being underinsured is too great. It’s always better to adjust limits or deductibles to an affordable level rather than eliminate coverage altogether,” he said.
He has also witnessed many clients regret reducing insurance to save money, only to face financial hardship later when disaster strikes.
“One client reduced coverage on a rental property to save $500 per year. When a fire destroyed the home, the limited coverage left them with a $250,000 loss,” he said. “The savings of $500 didn’t come close to offsetting the loss. My advice is to find ways to lower premiums through bundling or taking advantage of discounts but avoid reducing essential coverages. The risks far outweigh any rewards.”
Michael J. Alvarez, certified personal risk manager and managing partner at NuSure Insurance Group, also warned against downsizing coverage to save money on premiums.
“For example, a client dropped mold coverage to save $10,000 per year. Within months, a water leak caused $500,000 in mold damage — a $490,000 loss. Another client cut business interruption insurance and lost $3 million in revenue after a fire. The $50,000 saved in premiums was nothing compared to the permanent $3 million loss,” he said.
Car Insurance Coverage
According to Schneider, eliminating collision coverage to save a few hundred dollars a year often leaves vehicle owners unprotected if an accident occurs. “The out-of-pocket costs to repair or replace the vehicle end up far exceeding any premium savings,” he said.
Dalton Tigner, insurance agent and partner at Tigner Insurance & Associates, also cautioned sacrificing quality services to cut costs.
“Experienced providers help avoid expensive mistakes that cost much more to fix,” he said. “Inexperienced budget providers often mean insufficient protection and hassles later. ‘You get what you pay for’ is true.”
For example, one of his clients cut auto coverage to liability only, saving $200 per year. “When their teen totaled the car, they owed $12,000 with no coverage,” he said.
Opting To Rent vs. Own
“Renting instead of owning a home is another area I advise against downsizing to save money,” Harris said. He explained that home prices and rents frequently increase over time. “While moving to a rental may decrease your housing costs now, rents are likely to rise significantly in the coming years,” he explained.
He said you would lose the opportunity to build equity in an asset you own as well. “Many of my clients have found renting to cost far more long term compared to home ownership,” he noted.
Tigner shared the same opinion, noting that downsizing your home to rent rarely saves money long term. “Homeowners build equity through paying down mortgages and appreciation, but lose this when selling,” he said. “Rent usually outpaces owning costs quickly. Many clients’ rent rose thousands per year after downsizing from owning.”
One of his clients sold their home to rent, saving $5,000 per year. Rent rose $10,000 the next year and $15,000 the year after.
“They regret not keeping their fixed-cost home,” he said.
Skimping On Qualified Professionals
According to Harris, hiring inexperienced professionals to save on fees is risky and often backfires. “Their work is frequently subpar, leading to costly errors and fixes,” he said.
For example, an unqualified accountant could make improper filings leading to penalties or a shoddy contractor’s work may require expensive repairs. “It is best to pay for quality services from professionals with proven experience in their field. Cutting corners to save a few dollars usually ends up costing much more,” Harris said.
Alvarez advised the same. “Experienced professionals cost more but avoid expensive mistakes,” he said. On the other hand, inexperienced contractors make errors that end up costing much more. “I’ve seen commercial claims that should have settled for $500,000 end up at $2 million due to improper handling,” he said.
Overall, experts warned that cheap solutions often end up the most expensive.
“Do research, get multiple opinions and don’t make snap decisions to cut essential coverage just to save a little upfront,” Alvarez said. “Protect your assets and revenue sources. The short-term savings are not worth the long-term risk.”
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