(1) If we can live WELL within our means, then we can save more and be better prepared for whatever lies ahead (not that we're one or even 10 paychecks away from disaster, but...); and
(2) Having a smaller debt might enable one (or both) of us to work less to have more time with our kids, something we've been mulling over.
Finally, I think seeing others live comfortably on less has me thinking that we ought to try. The question is, would such a move be worth it?[/color]
(1) What is stopping you from living well within your means now subject to the constraints of not spending a lot of money moving?
(2) Having a smaller debt would simply reduce your debt service costs. If that is a significant part of your expenses then it could be worth it. There are two ways to reduce that. You can reduce your principal by selling and buying a cheaper house or you can reduce your rate by refinancing. If your goal is to improve cash flow then you will be far better off refinancing. If your goal is to reduce your debt then maybe selling and buying something cheaper is the best course.
You are ignoring something that people usually do - appreciation. Your house will generally appreciate at the inflation rate. That gives you a phantom income of around 2% of its value every year right now. Buying a cheaper house means that phantom amount goes down. I know that's a little vague and abstract to think about but you can't rationally talk about price (which is a measure of net present value) and then ignore those kinds of things. Doing so will always drive you to either live in a cave or stop following that path of thought.
Finally, it really sounds like there is peer pressure going on here. You met people who are more frugal than you are so you want to be like them. There is nothing wrong with that. But just realize that "living on less" like they do is only possible for you if you spend money to put yourself in that position. The logic of that escapes me.
If you want to move it sounds like you are financially well enough off to do so. If it makes you happy then that's probably what you should do. But don't fool yourself into thinking that moving is a way to save money. You'll spend a lot that you can never recover and you'll find yourself back in pretty much the same situation.