The first time I played the game I maxed the encumbrance skill to get more inventory space and still had trouble with the limit (until getting access to the battle tower chest). However, I hung on to lots of stuff I didn't need, and equipment that might be good once I had better charms or enchantments, etc, even though by that time I had access to better base equipment, as well. My second game I didn't need the encumbrance skill at all, and didn't run into any problems with the inventory size (though of course sent all my alchemy and enchantment ingredients, except malachite gems, to the battle tower chest when available).

See the topic encumbered for some more inventory management suggestions.