(MONEY Magazine) – With the U.S. economy limping toward an anemic recovery one day and slip- sliding back into recession the next, it's no wonder the national mood is so gloomy. The ABC/MONEY Consumer Comfort Index -- which measures how consumers feel about the economy and their own finances each week on a scale of -100 to +100 -- sagged to a record low -45 in October before inching back slightly to -43 by the end of the month. In addition to dismay with the economy, however, there's a growing dissatisfaction with the Faustian bargain American consumers made in the '80s. To satisfy our appetite for the good life, we ran up debt 162% to a record $3.4 trillion. But now, faced with the payments on those loans, we find ourselves feeling more emptied than fulfilled by the things we bought. Given today's economic uncertainty and the growing sense that our priorities are out of kilter, many Americans are re-evaluating their financial lives. That means not only looking for ways to trim unnecessary expenditures, but rethinking ingrained spending habits and recalculating the benefits you derive from them. The frequent result: cost cutting that actually improves your quality of life. For anyone who is reassessing their spending and lifestyle, the two articles in this special report can provide fresh insights and practical advice. We're talking major economies here, not saving a couple of extra bucks by buying holiday gifts at Doofus Discount instead of Neiman Marcus. In this story, the emphasis is on longer-term strategies that will help you save on your largest expenditures -- for example, your house, your children's education and your family's medical care. For those who want '90s-style instant gratification, the following story, ''14 Terrific Moves That Can Save Plenty,'' describes tactics you can begin using today. The Olney family of Redmond, Wash. demonstrates how a household can indeed live far better on much less. Two years ago when Pam Olney, 36, quit her $30,000 job selling office furniture to devote more time to raising her three children, she and husband Guy, 43, calculated that they had to reduce their spending by about $4,000. That was the amount that her wages -- a third of the couple's total income -- added to the family's bottom line, after taxes, child care and Pam's work-related costs. So the Olneys embarked on a disciplined but hardly draconian expense-cutting program. Instead of blowing $150 on dinner at local restaurants each week, they cooked at home; rather than buy clothes at upscale Nordstrom, they shopped J.C. Penney. Checking their progress after one year, the Olneys got a shock. ''We cut our spending in half,'' says Guy. ''We had trimmed $16,000, not $4,000.'' What's more, the couple insist that their quality of life is better than ever. Says Pam: ''We enjoy our less stressful life far more than the things we used to buy.'' Of course, going on a crash-spending diet isn't a practical solution for everyone. But you can slash your costs by 20% or more by reducing major expenses as you rethink the way you live. Below are five strategies that, alone or combined, can reclaim one of every five dollars you spend: Trade down to a smaller, less expensive house. Buying the biggest house you could afford seemed a fail-safe idea in the '80s, when prices climbed as much as 20% a year. No more. Housing prices in most areas are flat or falling, and housing analysts expect average appreciation of 5% or so a year -- barely ahead of inflation -- till the end of the decade. And as property taxes zoom upward -- they've risen 50% since 1985 in some communities -- owning an oversize house could become even more onerous. Trading down works especially well for families who overextended themselves on housing in the '80s. Scaling down to even one less bedroom can reduce your annual housing costs by about 10% of the difference between what you get for your old house and what you pay for the new one. Say you sell a four-bedroom home for $175,000 and use the equity, including appreciation, if any, to buy a three-bedroom house for $40,000 less. You would save roughly $3,800 a year in mortgage payments, taxes and upkeep. ''For many people, that could spell the difference between accumulating wealth and living on the edge,'' says Southfield, Mich. financial planner Richard Dirksen.

Of course, if you reap a profit, you would owe taxes on the gain, unless you qualify for the one-time capital-gains exclusion. But if falling prices have wiped out your equity, trading down would be impractical since you'd have to dip into savings for the down payment on your new house. Or you can put in sweat equity to lower your housing costs and gain space. For example, when Dan Gagliardi, 32, and his then fiancee Robin Eisenson, 27, sold his $80,000 two-bedroom condo and purchased a dilapidated 100-year-old three-bedroom colonial in Ossining, N.Y. for $70,000, their monthly mortgage payment dropped 30% from $1,050 to $725. They used the $20,000 profit from the condo to cover rehab expenses and pay off more than $8,000 in credit-card debt. ''We have everything we want now,'' says Dan. ''We're just paying less for it.'' Relocate to an area with lower living costs. Such a move would be a major disruption for many families, but there's a persuasive argument for considering it. Although the cost of living varies as much as 90% from the most expensive parts of the country (California and the Northeast) to the least expensive (Florida and Texas), salaries seldom vary by more than 25%. ! According to the Economic Research Institute in Newport Beach, Calif., someone earning $48,000 in Los Angeles would typically take no more than a 13% pay cut by moving to Atlanta, yet his cost of living would drop by more than half. ''That 50% boost in buying power could be the difference between never owning a home in a high-cost city and buying one the minute you settle down in a more affordable area,'' says James Angelini, founder of Right Choice, a Derry, N.H. company that analyzes the financial impact of relocating from one city to another (cost: $150; 800-872-2294). It was savings like this -- plus the allure of a less hectic lifestyle -- that led Bonnie Hayman, 37, and Richard Meyer, 46, to relocate last year from San Diego to Canandaigua, a town of 15,000 in New York's scenic Finger Lakes region. A month after the couple moved east with daughters Talia, 8, and Shanna, 6, Richard landed a $60,000 job as a computer programmer in a nearby town. Bonnie, meanwhile, expects to earn $50,000 this year as a freelance technical writer, boosting the couple's income $5,000 above what it was in San Diego. But the real gain comes from their 40% drop in expenses -- about $2,250 a month in Canandaigua, compared with nearly $3,700 in San Diego. For half the price of their $300,000 four-bedroom on a quarter-acre in San Diego, they found a three-bedroom ranch on a rolling acre in Canandaigua. The couple are renting the San Diego house, hoping for a higher price when the housing market improves. Fortunately, the cash freed up by their new lower expenses enables them to hold out. ''I don't know if this qualifies as having it all,'' says Richard, ''but it comes close.'' Opt for a highly rated public college instead of a pricey private one. Choosing a top-quality public institution over a private school is a painless way to save upwards of $30,000 in just four years -- without sacrificing quality of education. Last year, the average private college charged $14,403 for tuition, room and board. Costs at public schools meanwhile came in at a modest $6,523 for in-state residents and $9,832 for out-of-staters. You might elect to forgo this 30% to 55% annual savings if a private college guaranteed a better education. But that's not the case. Even in the face of cutbacks triggered by state budget deficits, top-drawer public schools -- dubbed the public Ivies -- offer as good an education as some of the best private schools, according to a growing number of experts. ''During the 1980s, ) states poured money into public universities to attract better teachers, who in turn attracted better students,'' explains James Mingle, executive director of the State Higher Education Executive Officers Association. ''The Universities of North Carolina, Texas and Virginia, for example, are now low- cost elites.'' (To learn the cost and quality of 1,011 U.S. colleges, consult MONEY Guide: Best College Buys; P.O. Box 30626, Tampa, Fla. 33630; $4.50.) Unfortunately, many parents still equate reputation with quality. That's the reason Jerry and Barbara Mayer of Parsippany, N.J. decided to send their daughter Beth to Brandeis in 1988 despite the $21,000 annual cost. After Beth's freshman year, however, financial difficulties forced her to transfer to a school she'd rejected earlier -- the State University of New York at Binghamton, which costs just $10,000. Now a senior, Beth is convinced she didn't compromise her education. ''Both schools have the same caliber of students and teachers and the same size classes,'' she says, ''plus the social life is much better at Binghamton.'' Join a health maintenance organization. If you've got a traditional health policy, you probably pay a yearly deductible of $100 to $500, 20% of covered medical costs and 100% of uncovered ones, including bills for prescription drugs and preventive services. These costs can mount steeply if your family includes chronically ill or elderly members or small children in constant need of checkups, immunizations and minor emergency care. An HMO, however, provides virtually all your care for a flat fee, usually with no deductible, and co- payments that average just $5 per office visit. These lower out-of-pocket costs translate to big savings -- as much as $1,000 a year for the average family of four. If your household has above-average medical bills, the savings can be even greater, as they were for Bill and Linda Sarkisian of Auburn, Mass. After spending more than $1,100 in nonreimbursed expenses in 1989 to care for their six-year-old daughter Megan's chronic ear infections and mild neurological problems and 10-year-old Angela's routine childhood maladies, the couple decided to switch to the Fallon Health Care HMO. Although the Sarkisians paid $341 more in premiums since moving to the HMO, they avoided roughly $4,184 in out-of-pocket costs for CAT scans and neurological tests. The bottom-line savings: $3,843 over two years. Reconsider whether earning more money really improves your life. Once you've reached a certain level of comfort, the return on extra earnings begins to diminish -- particularly if the extra work erodes your quality of life. When working couples take a hard look at where that second paycheck goes, as Pam and Guy Olney did, they find that additional expenses usually suck much of it away. So if one of you is working for money rather than fulfillment, you may be able to improve your life by reducing spending and quitting the lower-paying job. That's usually the case if one of you earns two or more times as much as the other and child care and taxes consume 50% or more of the smaller salary. Living better by spending less is certainly the philosophy of 36-year-old Amy and 42-year-old Jim Dacyczyn (pronounced decision). Though the couple have six children and Jim has never earned more than $32,000 as a Navy communications technician, two years ago their disciplined saving allowed them to buy their dream house in Leeds, Maine: a pre-1900, four-bedroom farmhouse on seven acres for $125,000. ''We saved nearly $50,000 in seven years,'' says Amy. ''The kids got garage-sale toys and homemade Popsicles, but they have a seven-acre playground to show for it now.'' Eager to spread the word that happiness costs less than most people think, in June of last year Amy began publishing the Tightwad Gazette, a newsletter that extolls the joys of rational spending (R.R. 1, Box 3570, Leeds, Maine 04263; send a 29 cents stamp for a free copy). The publication, which has attracted 50,000 subscribers in just 18 months, has provided the bulk of the family's income since Jim retired in June. ''We just touched a nerve,'' says Amy. ''People are tired of worrying about what they want next. Now they're more interested in getting what they want most.''

BOX: Save $669 on credit

The oppressive interest rates on credit cards -- as high as 22% -- can zap your budget. To reduce the damage, consider repaying plastic and other personal debt with a home-equity line of credit with a rate as low as 8%. The interest on home-equity loans is usually tax deductible, so your effective rate may drop to 6%. The average household, which carries $7,774 of nonmortgage debt at a rate of 14.6%, would recoup $669 a year. There is a better way to save: pay cash.