I've always had a small house and the first thing I do is go through it once a year, in the fall before Christmas, and if I find anything I haven't used in the last year, it's gone. Secondly, I don't save up for yard sales because there isn't room. Also remember, holding on to toys and clothes just takes up a lot of room, and there is nothing that you could get rid of that can't be replaced if need be.
Next rule of living in a small house, if one thing comes in, one thing needs to go out. Try not to get too many things. If you're an impulse shopper, try to stop and picture it in your space before you buy it. If you can't, then don't get it. If you really really must have it, picture what you're going to get rid of in order to have it. Is the trade worth it? Do that for toys, clothes, furnishings, everything.
If you have no built in pantry, a linen closet, old changing table or old entertainment center works well and keeps your tiny kitchen from feeling like it's going to explode at the seams. Also, bin it! I use lots of bins for storage. Not the kind you put lids on and save for later, but the kind that you can keep things you use for every day in easy reach. I like the open plastic baskets from the dollar store for toys and books.
Living in a small house is never easy if you like to shop, have kids, or have a hoarder husband (who gets mad at me for my "haven't used it in a year..." rule). So I hope some of this helps!
And I do hope this might help you too, if you live in a small house!
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