Downsizing your home is most commonly associated with empty-nesters and retirees looking for smaller spaces after the kids have moved out, but it’s also becoming a more popular move for a growing number of hard-working, money-smart homeowners. It’s also a move that makes a lot of financial sense.

From a corporate perspective, the whole concept of downsizing is financial. Companies close facilities, shed business lines and lay off workers in order to save money. When they do, Wall Street cheers and stock prices rise because lower expenses lead to bigger profits. The exact same thing occurs, on a smaller and more personal scale, when you downsize your house.

Chasing the Savings

Soaring home prices, soaring energy prices and high gasoline prices all add to the cost of living. As a result, the financial benefits of moving to a smaller place are numerous, and well worth exploring. (To continue reading about real estate, see Investing In Real Estate and Smart Real Estate Transactions .)

Reducing the Mortgage Payments

The monthly mortgage payment is generally the largest single expense consumers face. It routinely accounts for 30% or more of their gross income — often accounting for 50% of net income. Downsizing your house can have a dramatic and direct effect on mortgage expenses. At the very least, it can result in a significant reduction in your monthly expenditures, a significant increase in your free cash flow and massive savings in interest over the term of your mortgage. (To learn more about mortgages, see Shopping For A Mortgage . Understanding The Mortgage Payment Structure and Paying Off Your Mortgage .)

If you make the right move, you might be able to trade in your house and use the profit from the sale to purchase your next home in cash. If you are really in great shape financially, you might even pay off the new home and have tax-free profits from the sale of your old house left over to invest. (For more insight, see Will Your Home Sale Leave You With Tax Shock? )

Calculating Taxes and Mill Rates

Real estate taxes are generally the next largest expense for homeowners and, unlike the mortgage payment, they never go away. Downsizing your home is an easy way to minimize real estate taxes. Simply moving from a 3,000-square-foot home to a 1,500-square-foot home can cut your taxes by half. See the example below.