A Pragmatic Approach for Dealing with Your Decimated 401K

You're in your late thirties or forties or fifties and you have been putting every dollar you can spare into your 401K, trying to save for retirement. You have had dreams of retiring between age sixty and sixty-five, and the last few years you've watched your nest egg grow as the interest accumulated. However, when you last checked your balance, with a sigh you shook your head and stared at the total at the bottom, perhaps only half of what it was a year ago. If you're like me, dreams of early retirement have all but blown up.

What do you do now? The list below is intended to alleviate some of the financial anxiety you may be feeling. I'm not going to say you'll get your money back (you might, but you might not), but here are ways that you can make some adjustments and perhaps save a little more than you would otherwise.

Life can still be lived to the fullest, but the definition of "to the fullest" might need some rethinking. That being said, here's what you can do.

1. Don't panic (but accept reality). The sky is not falling; the world will survive. It's possible (probable) that the market will climb again. It's also possible, depending how close you are to retirement, that you will not end up with as much in retirement as you were planning. And it's also possible that you will have to work longer than you were planning. But it's not the end of the world. So far all this talk has been about money. But now is a good time to evaluate how you've been living your life. Are you really spending your money on things that are lasting and important? How are you spending your time?

2. Live within your means. Examine your lifestyle. This is going to sound painful, but it's really not bad, and it may help you in the long run. Simply put, are you spending more than you're bringing home? If the answer is yes, then you need to figure out why. Some of the things you'll need to do are discussed in the next few items in this list. If you are unemployed and have no income, then this is hard (or impossible). If you still have a job, then you need to figure out where the money is going. The next time you feel like going shopping, ask yourself if you really have to shop. It is amazing how much money you can save if you avoid shopping.

Sometimes spending money will save you money. For example, maintaining your car with regular oil and filter changes will help prolong the life of your vehicle, delaying when you will need to buy the next one. Keeping your house maintained -- for example, getting it painted when it needs it -- will help preserve the exterior and will delay or prevent more costly repairs from damaged or rotted siding.

3. Live within your needs. What does that mean? Simply put, are you buying things that you don't need. I'm not talking about things you want. My youngest daughter, when she was two, would say, "I need that," when what she really meant was that she wanted it. She didn't need it. Are you buying things that don't get used? One can shop at a yard sale and be just as guilty as someone who shops at Macy's; if you buy something you don't need or won't use, you're missing the point.Food is a need, but eating in restaurants every night is probably not a need. Even if you eat all your meals at home, eating lobster every night is not a need. Buying the fanciest car is not a need, most likely.

4. Track your food budget. Of course you need to spend money each month on food. Take a hard look at where your money is going. Are you spending $4 for a box of processed cereal that supplies five breakfasts, where you could be spending $2.50 for a tub of oatmeal that supplies twenty breakfasts? Are you going out to eat at lunch instead of bringing in leftovers from home? You don't have to be a martyr in order to save money in this area. In fact, you can eat quite well. You just have to be smart about it, and you have to be willing to do a little research of grocery store prices, etc. Eating out less often and eating at home more often will probably save you a considerable amount. When you're grocery shopping, you can buy stuff on sale (but only if it's food you will eat - do not go out and buy forty boxes of something unless you really like that product). One thing my wife does very well is to buy large amounts of chicken or ground beef when it is being sold at a reduced price, and then she'll cook it and freeze it for future use.

5. Track your clothing budget. Clothing is a necessity. Most countries in the world don't allow people to run around naked. However, new outfits every month are probably not a necessity. In fact, having a large closet full of clothes is probably not a necessity. You do need to dress appropriately for the job, that is true. Take a look at your clothing budget. How much did you spend for that shirt that's hanging at the far end of your closet? And you've only worn it twice? Or what about that dress you bought for half price, even though it was a size too small? Some people will cringe when they read this next sentence, but stick with me for a moment. Thrift stores can offer a very nice alternative when you're looking to buy good clothing at a good price. My wife buys most of her clothes at a local thrift store, and she comes home with nice stuff. No one has kicked her out of church or any of the various meetings she attends because she's wearing clothes from a thrift store. And the clothes she gets at the thrift store look new, have little or no signs of wear, and they hold up well. Some things you'll need to buy new, such as under garments and shoes. Items like that, though, can also be found on sale.

6. Are gadgets a necessity? For the most part, no. If you have gadgets already, there's no need to feel guilty. But if money is tight and you're having to rethink your retirement plans, then get real. You don't need that new mp3 player; you don't need that GPS; you don't need the latest in flat screen technology; and you don't need the latest in audio equipment. You don't even need the latest coolest cell phone. You also probably don't need the latest desktop or laptop computer, although at the time of this writing, computer prices are plummeting and may be worth investigating. Now, I love gadgets. I love technology. And I cringe when I think of not going without something cool. But even my iPod, which is four years old, is something I won in a raffle at a trade show. Otherwise I probably wouldn't have one.

7. Set some travel plans, short term and long term. For several years I have wanted to go to China. My kids and I have been trying to learn Chinese, and I've been anxiously anticipating being able to someday go there. At this point, though, I'm going to have to set those plans aside. It's just not feasible to spend that kind of money any more. I can still enjoy learning about China, and I can continue learning Chinese. I simply cannot afford to travel there. How about you? Even with high gas prices, traveling by car is a relatively low cost solution for any vacations or trips that are taken in your region of the country. When you're traveling somewhere on vacation, are you staying in hotels? Have you considered camping? A few years ago, we drove from North Carolina to Seattle, Washington, and back. Except for one night in a hotel, we camped all the other nights. By the time we had set up the tent a few times, we had an established process and could get the whole thing set up in less than five minutes.

8. Get out of debt. You've heard this all along but you've ignored the warnings. You really don't want to be paying interest on money you owe. If you are in debt, go back and examine your lifestyle with the above list. What can you cut out? Where can you cut back? The mortgage on your house may be the exception, but that's worth revisiting too. What interest rate are you paying on your house loan? Rates are low right now, and you may want to consider refinancing.

9. Look for residual income, but hang on to your job. If you are one of the lucky ones who still has a job, keep it! Focus at work; keep plugging away and proving your worth. This isn't about trying to climb the corporate ladder; it's about demonstrating your value so that when the company decides to trim its work force it also recognizes your contribution and keeps you around. Where else can you make money? Online writing? Selling your baseball card collection on the internet? Teaching music lessons or doing some business or technical consulting on the side? Tutoring a child? There are countless other possibilities out there that are worth your scrutiny.

10. Most important of all, examine your priorities. How does your religious faith come into play here? Are you worried and anxious about what tomorrow may bring? Has your relationship with God withered in proportion to your retirement savings? Or has it had the opposite effect, and you are now realizing you need to depend on God more than ever? Resetting priorities; getting rid of some of the clutter in our lives; getting rid of some of the distractions; and realizing there's more to life than money, all plays together.

Slow down. Spend more time at the dinner table talking with your family. Invite friends over for a pot luck dinner. Do experiments with your food budget.

It is amazing how much money you can save if you avoid shopping and avoid restaurants!

Examples of where you can save money without sacrificing quality of life: Instead of golfing and paying extravagant green fees, perhaps you can go for a walk in the park, find a park bench, and sit down and tell your child a story. Instead of going to a movie in the theater, perhaps you can rent a video and watch it at home. Or better yet, find a script to a play (Shakespeare or Ibsen or anybody) and act out the parts. Instead of flying across the country to do some site-seeing, perhaps you can drive to your favorite town just two or three hours away. And the list goes on.

It is not a time to panic, but it is a time to be realistic, prudent, and frugal. You can be all these things without giving up your quality of life; you just have to realize that quality of life is not about money, it is about your priorities and how you spend your time.