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How much stuff is in your house? Your garage? Or, heaven forbid, in a storage unit? It’s a common claim that we never use 80% of what we own. Beyond the nuisance of clutter, I’ve been wondering something recently - how much is all this stuff costing us?
To figure this out, let’s take a look at a business concept called carrying cost.
…the total cost of holding inventory. This includes warehousing costs such as rent, utilities and salaries, financial costs such as opportunity cost, and inventory costs related to perishability, shrinkage (theft) and insurance.
Holding cost also includes the opportunity cost of reduced responsiveness to customers’ changing requirements, slowed introduction of improved items, and the inventory’s value and direct expenses, since that money could be used for other purposes.
Successful businesses work hard to cut their inventory because it reduces two major types of costs:
- The cost to store the inventory (warehouse rent, environmental controls, etc)
- The opportunity cost of the money tied up in the inventory. That is - if you have $3 million in inventory but can reduce it to $1 million, you’d have an extra $2 million in cash. You could then use that cash for other, more profitable activities (i.e. developing new products, expanding your sales and marketing efforts, etc)
But this isn’t a blog about corporate finance - this is a blog about personal finance, so let’s get personal.
How Much Stuff Do You Have?
Take a look around your bedroom - how many things can you count immediately in sight? Now think about what’s in the drawers, the boxes, the storage bins, on shelves, and in the closet. Every sock, every keychain, every decorative trinket. It adds up!
If you’re adventurous, do the same for all the other rooms in your house. Cover all your spaces and see where you land. Big number? According to the LA Times, the average American household owns 300,000 things!
Even if you can count it all up, how would you even begin to assess how much it’s all worth?
Luckily, there’s a whole industry built around exactly this question. Most homeowner’s insurance policies insure your personal belongings at a rate of 50-70% of the value of the structure of your home.
In short, if your home is worth $250,000 and $100,000 of that is land, the structure is worth $150,000. At 50-70%, your homeowner’s policy is insuring you for $75,000 to $105,000 worth of stuff.
This is the insurance industry’s assumption of the value of stuff in a given home. It’s not perfect, but given how much actuaries get paid, it’s worth taking this estimate as a starting point.
Now take the opening statistic in this post. If 80% of that stuff goes unused and you could turn it back into cash, you’d have an extra $60,000-$84,000.
What would you do with that kind of money? On my end, it could almost buy me an extra 7 years of retirement.
And that’s only on the opportunity cost side of the equation. The often hidden cost here is the cost to store all that junk in the first place.
How Much Does Storing That Stuff Cost?
In our case, we’ve done a significant amount of decluttering over the last several years. As we got closer, our house seemed to be getting bigger and bigger - to the point that we have a ton of space we don’t even use.
As a result, we’re only using about 900 of our 1900 square feet in our house right now. Also, we’ve consolidated down to just one car, so our two-car garage is also bigger than what we actually need.
In short, we could live in half the house we’re living in now and be perfectly fine now that we’ve gotten rid of all of that stuff. That’s half the square footage for the price of our home, half for our annual property taxes, half for our homeowner’s insurance, and a good dent in our heating, cooling, and lighting costs.
Even if we’re conservative and say that downsizing would only drop these costs by a third, we’re looking at a huge impact.
- The $250,000 house would have only cost $200,000 (land value fixed but the structure value goes from $150,000 to $100,000). Presuming the same down-payment amount, that extra $50,000 in house costs an extra $2800 a year in mortgage payments (principal and interest) for a 30-year fixed mortgage at 4%.
- In wintry Wisconsin, we pay about $130 a month for our electricity and gas service. Cutting by a third would save us $43 a month - over $500 a year in utilities!
- Property taxes in our area are high - $5000 in 2016. Knocking a third off of that would be over $1300 a year in property taxes.
- Our homeowner’s insurance cost is roughly $600 a year. Less house and less stuff to insure should drop this proportionally. Cha-ching - another $200 a year in homeowner’s insurance
Totaling these, we end up with a savings from downsizing of $5,000 a year. The flip side of that is paying about $5,000 a year to store all that stuff instead of downsizing!
You could be paying $50,000 every decade to store stuff you don’t even use.
So, between the $60,000-$84,000 value of your unused stuff and the $50,000 a decade storage cost, maybe you’re ready to declutter?
Managing Your Inventory
I’ve taken you down the financial walk to minimalism. In a nutshell, less stuff = less cost and less stress.
To get acquainted with minimalism, I think the best starting point is reading The More of Less by Joshua Becker.
In addition, you can check out my experience on how to become twice as happy with half as much as well as my rockstar wife’s website, Jaime Declutters, for practical tips on decluttering and inspiration on your minimalism journey.
Any guesses how much your stuff is actually costing you? Are there particular things you have a tough time letting go of even though they aren’t providing any value in your life? Does calculating their cost make things any easier?