Whenever financial troubles threaten the survival of a company, one of the first steps it takes to reduce costs is to downsize, which everyone knows is a corporate euphemism for layoffs.

But what if you're an individual in financial trouble? You can't lay yourself off. But you can downsize in other ways, in the process shedding expenses and, as they say in business school, enacting a strategy to move to the next level.

Personal downsizing certainly isn't a new phenomenon. Retirees and empty-nesters have been using this strategy for years as a way to simplify their lives and reduce their overhead. The difference today is that there are millions of Americans, many of them baby-boomers, who haven't retired yet but who still need to reduce costs because their expenses far outweigh their income.

We're not talking so much about people who are on the economic fringe, working as a Wal-Mart greeter or pulling the night shift at the 7-11. Chances are they don't have much room to downsize.

We're talking about people with first and second mortgages, who own two or three cars, who are having trouble keeping up with their credit card payments, who are paying huge college tuition bills and other costs for their children including teenagers or even adult children still in school, and who have just been hit with the added financial and emotional responsibility of caring for their aging parents.

If you're in this category and you're finding it hard to sleep at night because you are worrying about how you're going to pay for all this, then downsizing may be your best solution. It beats bankruptcy or foreclosure.

Your Assets

Your home is probably your greatest asset and therefore the cornerstone of your downsizing plan. So the first thing you need to do is to get a realistic independent appraisal of what your property is worth on the current market.

Then subtract how much you still owe on any mortgages, any realtor fees you may have to pay, the cost of any improvements you will need to make before you can even put your house on the market, such as painting, or repairs, as well as any legal fees related to the sale, and finally the cost of moving (which can vary widely depending upon how far you are moving as well as whether you are planning to move everything yourself or hiring a moving company to do it for you). What remains will be the amount you'll have to buy a smaller home.

Since your goal is keep as much of the money that you get from the sale of your home so you can use that income to live on or to invest for future expenses, you will now want to find the least expensive home that you can afford but that will still be comfortable for you and your family.

Chances are the new home will be smaller and in a less expensive community. You will be able to save even more money by downsizing since your mortgage payments on the new house will be smaller, as will your oil, gas or electric bills. (But remember to factor in the possible increased commuting costs -- train fares, tolls, and/or gasoline costs -- if you keep the same job but move farther away.)

Timing plays an important role in any downsizing decision. If your financial situation is very grave and you wait too long, you may not have time to sell your home before it goes into foreclosure. Also, you'll probably need to sell your home before you buy another one -- so put your time and energy into getting your current home or apartment ready for the assessment and the sale rather than the more fun task of finding a less expensive home or apartment to move to.

Getting Ready to Sell

You should get advice from a real estate attorney early in the process. Your attorney will help you prepare documents that will include several dates and conditions that will need to be met by both you and any buyer including those that could allow you to live in the house until you can move into your new home.

There are a number of options to consider when preparing to sell your home. One is to sell your home "as is," deducting from your asking price the cost of any necessary repairs such as a new roof, painting, or any problems detected by a licensed inspector. Another option is to pay for this work and include it in your asking price.

Some typical home improvement include a new paint job, inside and/or outside, upgrades to the electrical system and plumbing as well as changes in some of the rooms, especially in the master bathroom where a new, more modern sink, toilet or Jacuzzi could tip the scales in favor of a buy over a pass.

Realtors will often emphasize something called "curb appeal," which is how the home looks to someone passing by. It is the first time a potential buyer sees it, usually from the curb and before turning into the driveway. It falls into the category of first impression, and experts will tell you that those first impressions sometimes override any new interior improvements that you may have made.

So keep your property clean, well-landscaped and picture perfect. Put fresh mulch on beds around trees and trim lawns, shrubs and walkways. Pick up anything sitting on the lawn that could be an eyesore whether it's a broken old piece of summer furniture or old planters without any plants or flowers.

Inside, your home should be just as attractive and free of clutter. Clutter can kill a sale as easily as a leaky roof. So do a thorough house cleaning, removing from each and every room or hallway any item that gives even the hint of clutter which could imply that you lack enough room for storage.

Whether you sell the house yourself or use a realtor, set the right price so your house sells quickly. You will already have a realistic appraisal so any buyer should feel they are getting real value at a fair price.

A third option is to have an auction. You may want to hold off on this until your house has been on the market for a while but hasn't sold. Most auction services will charge a commission as well as any marketing costs such as newspaper advertisements, brochures and postcards.

There are some advantages to an auction. You sign a contract, there's a six-week marketing campaign, and after the auction is held, you close in 30 days.

Another advantage is that an auction is a cash transaction. You don't have to worry about the financing falling through. Any potential buyer has to arrange that ahead of time. One possible negative of an auction is that, chances are, you will have to accept a lower price than originally anticipated. But even here you can set a minimum acceptable price.

Where To Go?

Once you clear the hurdle of selling your existing home, you need to think about where to go next.

You may want to consider living in a condo instead of a standalone house. Condo living has certain advantages such as not having to worry about supervising lawn maintenance although you will probably still have to pay a maintenance fee, which will differ from property to property. Plus there's the noise factor of living so close to your neighbors and perhaps having to make do with less living space than in a standalone house.

If you decide to downsize by moving to a more affordable community, or even another state, you may actually find that you can move to a larger home or apartment while still paying far less.

For example, checking the current listings of the online site of a major real estate company (which includes listings from other companies as well) in the pricey Westchester, N.Y., suburb of Scarsdale, $369,000 will get you a 2-bedroom, 2-bath co-op measuring 1,350 feet. Or for $589,000, there is a 1,650-square-foot house for sale with 3 bedrooms and 2 baths on .11 acres of land.

By contrast, in Normal, Illinois, a house measuring 4,475 square feet with 4 bedrooms, 3 baths, an in-ground pool, and a large piece of property is listed for $375,000. (Normal might sound, well, abnormal but it's the home of Illinois State University and, like many college towns, offers not just inexpensive housing but cultural events, good medical care and lots of sporting events).

If moving several states away is not an option, even within commuting distance of most regions there are wide variations. For example, in Port Chester, New York, another community in Westchester which is not that far from Scarsdale, you could get a 1,584 square foot house, with 3 bedrooms and 1 bath, not just a condo, for $399,000.

Another option is to consider moving in with relatives after you sell your house rather than immediately rushing to buy something new. Whether you move in with your parents, adult children, extended family members, or even friends, if everyone agrees this is a temporary measure it could be an excellent way to get back on your feet financially.

You and your family member or friend will have to work out the details of your living arrangement and whether or not you will be expected to contribute to the monthly overhead or just pay your own food costs.

Whether you stay put or move to an exotic new locale, give serious thought to finding something more compact. After all, if you have less space you need less furniture and you should spend less on heating, air conditioning, utilities, insurance and so forth. Once you've found your new home, make sure you measure every room so you can determine which pieces of furniture will fit.

There are a number of options for the furniture you decide to leave behind. You can store it, sell it at a lawn sale or on eBay.com, or you can donate it to Goodwill or the Salvation Army.

If you donate your old furniture, many legitimate charities will come and cart it away for you -- and you get to claim it as a charitable donation on your tax return. Check what the procedures are with any charity you plan to donate to.

Speaking of tax returns, use the move as an opportunity to prune your files. Ask your tax adviser to let you know what tax returns and records you have to keep, going back how many years, and get rid of everything else.

If you're an empty-nester, you need to decide what to do with your children's toys, clothes and collectables. The best thing you can do is contact your children and ask them to take away the stuff they want to keep and then get rid of the rest, again either by selling or donating it.

Some people put whatever won't fit into their new home or apartment into storage. But unless you plan on moving into a larger house, you might as well get rid of those possessions now, especially if you can use the extra income from selling everything or you will get a tax deduction from the donation.

Storage, however, was a good choice for a friend of mine from college, who downsized by selling his house and buying a large RV (recreational vehicle) that he and his wife live in for most of the year, traveling throughout the country, although they do stop and park it for a couple of weeks at a time when they visit their grown children. Since my friend wasn't sure how long he and his wife would want to live this nomadic lifestyle, they put their furniture into storage so they could use it in the future. Storage is expensive, though, so think twice.

If you are leaving behind a lot of expensive furniture as well as other valuable objects, you may want to consider an auction. There are services that catalog furniture, silver, china, art works, and an assortment of other items to assist you in getting the best price. They will also conduct the auction either for a fee or a percentage of the profits. Another option similar to auction is to offer your items for sale on eBay.

If you don't have the time or patience to sell each item individually, there are eBay consignment stores that will do this for you and charge a commission.

For those items that you can't sell or even give away because of damage or simply because the object is too old to be useful anymore, there are refuse companies that will haul away your garbage. You can even rent a dumpster to put the stuff in. Some garbage companies let you leave items to be picked up with your regular garbage. Some municipalities have special cleanup days when residents can leave large items at the curb for pickup.

Moving into a smaller space takes some adjustment. One way to do that is to make multiple uses of items such as trunks than can also serve as coffee tables while being used for extra storage. You can also use rooms for more than one purpose such as putting a computer desk in your bedroom or dining room. Buy a washer and dryer that stack on top of each other. They'll will take up less space than side-by-side units.

Also, if it's now just you and your spouse, you can probably cut down on the amount of china, pots, pans and silverware that you need to have around.

Ditch the Hummer

Besides your home, you may be able to downsize your cars. You can consider trading in your gas guzzling SUV if you don't really need four-wheel drive for something more economical.

What about that expensive sports car, motorcycle, or $600 bicycle that you only rode once? Consider trading in or selling selling.

If you really want cheap wheels, you may actually drive for free if you're willing to display advertising on your vehicle. If you move to a metropolitan area with mass transit, you may not need a car at all. You can always rent one when you take a weekend drive or trip. Zipcar and Flexcar rent cars by the hour and day.

To round out your downsizing plan, think about whether you need so many phone lines. You may be able to survive with a single cell phone.

With fewer rooms, you'll also need fewer television sets and therefore fewer cable boxes. Now that you can download television shows on your computer, do you even need cable anymore (except for basic cable if that's a necessity for the TV and/cable as well as broadband reception)?

Be Ye Upbeat

The most pivotal aspect of the personal downsizing challenge is your attitude. If you see this as a necessary but exciting next step, you will convey that enthusiasm and positive attitude to your spouse and family. If, by contrast, you feel this is a symbol of your financial failure, that too will be communicated -- which will certainly not be in anyone's best interest, especially when you're trying to get the best price for your home or apartment.

You definitely do not want to give the impression that you're desperate, even if it's true. Or, as the poker players say, "Don't let them see you sweat."

The best way to look at it? The way businesses do.

The most successful companies, by and large, are the ones that are constantly implementing new strategies that make them more efficient and customer-centered. You're your own customer so you need to be as efficient as possible in meeting your needs, right?

If anyone asks what you're up to, just be honest and say that you've reevaluated your situation and decided that downsizing is the best step to take.

After all, you're taking control of your financial destiny before the banks or your mortgage company take your property away from you so pat yourself on the back for being pro-active in this new venture as you aim for better economic horizons down the road.