Saving money for the new year starts with a budget

NEW YORK -- Do you keep track of your ATM withdrawals? Do you know what you spent on car repairs this year? Did you set aside cash for holiday spending?

If your answers are "no," "no," and "no," there's a good chance you didn't keep your 2009 New Year's resolution to stick to a budget. Promising that next year will be different isn't enough. Even with the best intentions, common mistakes can lead to failure. Avoiding these pitfalls can make the difference for 2010.

1. You think "budget" means "no spending."

Changing your language can help.

"When I talk to clients, I try not to use 'budget,'" said Michael Eisenberg, a member of the American Institute of Certified Public Accountants' financial literacy commission. Eisenberg likes "cash flow" because it's neutral.

Another way to view it: Budgeting helps you take control by encouraging you to make conscious decisions about spending, rather than mindlessly emptying your wallet. It's also important to remember that you won't transform instantly. Expect mistakes, and give yourself three to six months to get used to your plan.

2. You don't track your spending.

It's not how much you earn, it's how much you spend that counts. Advice is split on how much detail you should track. Some say estimates will do, while others advocate recording every dollar, at least to start. Realizing exactly how much you spend each day and on what can be eye-opening, she said.

How you track spending should fit your money habits and personality. If you use mostly cash, a small notebook may suffice. If you mostly use a debit card, your bank will do much of the tracking for you.

If you're tethered to your smartphone, there's more than a dozen apps for that. Among those getting positive user reviews are EveryNickel, iXpenseIt and SplashMoney.

3. Your plan isn't flexible.

"Most people think a budget is a static instrument," said Danielle Champagne, assistant director of the University of North Texas Student Money Management Center. Instead, she emphasizes a process: planning, tracking and reviewing.

Going through the receipts in your wallet, comparing the actual heating bill to what's budgeted and adjusting to reflect a smaller-than-expected paycheck are as important as developing the initial plan.

A good plan also has room for things like medical emergencies, flat tires and leaky pipes. Your plan should include reserves for likely categories so you're prepared. A general emergency fund should also be built in. Advisers say nine months of living expenses is a logical target.

4. You haven't set a series of goals.

Have "a real clear idea of why you want to do this," said Petro. "What's the payoff?"

Large financial goals like funding your child's college education or buying a house can provide motivation. But don't overlook the importance of easily achievable short-term targets.

Overhauling your entire financial life at once won't work, so it might help to set mini goals to get started. Try saving $20 per week. Reaching a series of smaller goals will provide a sense of accomplishment that can fuel your resolve for working toward the bigger targets.

5. There's no fun built in.

A bare bones budget may seem virtuous, but it's unrealistic to expect not to spend a dime on entertainment. One key to success is to make a plan that reflects your lifestyle.

6. Your spouse hasn't bought in.

When a budget fails, it's often because one member of a couple is gung ho and the other is not. Both should be part of the process from the beginning.

Petro, of Fox Chase Bank, suggests including a cash allowance for each person. That can help avoid guilt or accusations about incidental spending, as long as both agree that when their money is spent, they're done.

Like the planning stage, regular reviews should be done together to make sure both are on the same page.

You can take the first step for your 2010 plan by using tools available online.

Independent personal finance management sites like Mint.com, Greensherpa.com and Rudder.com provide spending analyses and projected budgets. Some require you enter account data yourself. Others can import the information if you share user names and passwords to bank, credit card and investment accounts.

Check what may already be available with your own bank, especially if you are reluctant to share account passwords with another Website.