(MONEY Magazine) – When you were four years old, you wanted a cookie now, not five cookies five years from now. Since then, you've learned that immediate gratification has its price. You can buy that cookie today, or you can invest the money and make it grow so that you can pay for more cookies in the future, perhaps when you're retired. Our point: almost everyone needs to find ways to curtail spending, freeing cash to meet short- and long-term goals. But how? And how much? For the answers, you'll have to learn the most basic process of managing your finances: the art of controlling cash flow, which is the stream of money that passes through your hands before taxes. ''Cash-flow management is the make-it or break-it of any financial plan,'' says Karen Schaeffer, a financial planner in Greenbelt, Md. If this sounds suspiciously like dread budgeting or forced deprivation, you're wrong. ''You need to devise a planning document, not a control document,'' says Larry Lang, a finance professor at the University of Wisconsin at Oshkosh and author of Strategy for Personal Finance (McGraw-Hill, $37.95). ''Make the transition from where the money is currently going to where you would like it to go.'' To take a snapshot of your current financial life, you can draw up a list of what you own and what you owe so that you can determine your net worth (see the box on page 11). Begin to cut spending by putting yourself through what Schaeffer calls ''a financial strip search'' to uncover exactly where you are funneling your money each month. The cash-flow worksheet on page 10 will help you create a personal income and outgo statement and compare your spending with recommended ranges for middle-income couples and singles suggested by Scott Shires, a Littleton, Colo. financial planner. It's simplest to track income and outgo over the past calendar year, since you already gathered much of the necessary information when preparing your taxes. But if your financial life has changed significantly since December -- you took out a new loan, received a windfall, got divorced -- don't forget to make appropriate allowances in the worksheet. Plan to spend several hours collecting the data and plugging in the numbers. In addition to your tax return, your check register should be a mother lode of information. (If you don't keep an up-to-date register, shame on you! The penalty: you will have to $ thumb through your canceled checks.) In addition, haul out your store and credit-card statements. Most creditors will send you copies of any that you are missing. You should also pull together your bank statements for a record of your electronic cash withdrawals. To fill in the final cash-flow numbers, you may need to keep an expense diary for a month to learn where your walk-around money ends up. You may be shocked at the dollars siphoned off by impulse purchases, routine expenditures such as dry-cleaning costs and those impromptu evenings out when no one feels like cooking at home. Once you've assembled all the requisite data, fill in the income part of the cash-flow statement and arrive at the total. Be sure to include interest from tax-free municipal bonds or muni bond mutual funds. Next, turn to expenses. Divide them into discrete spending categories such as the ones appearing in the worksheet. You'll probably wind up with between 12 and 20 categories. Be as precise as possible: you might subdivide household expenses down to his clothing, her clothing and kids' clothing, for example. (In time, as you isolate your spending excesses, you'll probably be able to whittle down the number of groups.) Include a category for mystery cash -- the money you spent but cannot account for. Trying to nail down the exact amounts for variable expenses such as groceries, meals in restaurants and medical bills can drive you crazy. For sanity's sake, analyze your payments for them over the past six months and multiply by two for a yearly total. As for the expenses without receipts that you tracked in the diary of your walk-around money, annualize the amounts and apportion them into the appropriate outgo categories. Don't worry about the pennies. Round amounts to the nearest $10. When this time-and-motion study of your spending habits is complete, take a deep breath and add up all your taxes and expenses. Subtract them from your gross income, and voila! ''This is your life,'' says financial planner Schaeffer. Ideally, the bottom line will show a hefty cash surplus that you stashed in savings and investments. Keep this habit up each year and your cash flow will be under control. But the worksheet may suggest that you broke even -- perhaps in spite of a shower of impulse purchases. Consider yourself lucky, though in need of spending reform. If you paid out more than you took in, however, you'd better start mending your spending. You either went into debt or drew on savings to make ends meet. If you were a corporation, auditors would be warning that you're in the red. Unless you are among the fortunate few who already save substantially and regularly, you must find ways to rein in spending. Chances are, about 70% of your income is earmarked for taxes, housing and other relatively immutable costs. So you'll have to squeeze the remaining 30%. A few areas are usually ripe: clothing, dinners out, spending on electronic gear and kitchen gadgets, as well as overuse of credit cards with finance charges that can top 18% a year. You'll get more ideas by looking at the cash-flow worksheet and comparing your spending as a percentage of gross income with the suggested ranges for people like you. Mystery cash is often the most troublesome category to control. If more than 30% of your take-home pay is spent in cash outlays, try writing checks for all purchases of $10 or more to create a paper trail of your expenses, advises the University of Wisconsin's Lang. He concedes this tactic may be more workable in places like Oshkosh than in larger cities where merchants don't always accept checks. You might also find less obvious places to trim. Take a look at your insurance policies, for instance. Raising your auto and homeowners insurance deductibles -- the amounts you agree to pay each year before benefits kick in -- might easily save you 20% of your premiums. And drop policies you don't need. ''I'm always amazed at how many people have burial insurance for themselves,'' says Dorlene Shane, a self-employed Miami financial planner. The coverage is too narrow, and you can guarantee that your final expenses will be paid if you keep an emergency cash reserve. Don't overlook what may seem like small stuff, such as spending on gifts. Financial planner Schaeffer says her seven-year-old daughter Kaitlin went to 19 birthday parties in the past year. Rather than curtail Kaitlin's social schedule, her mother lowered gift costs by buying toys in advance when they were on sale. Estimated savings: about $100. Along these lines, ask family members for belt-tightening ideas. Consider it a success if everyone agrees to cut back spending in at least one specific way. You'll get commitments most easily by demonstrating how such sacrifices will help everyone achieve their financial goals. For instance, buying a used car for the family instead of the newest model could help pay for your youngster's college education. No matter how sound the spending plan you devise, be prepared to fight temptation. Forgive yourself for an occasional lapse. But if the spending bug starts threatening your saving, Flora Williams, who teaches family and consumer economics at Purdue University, suggests adopting these techniques: -- Make fewer shopping trips and buy only from lists you prepared in advance. -- Consider the entire cost of an expensive item, not just its retail price. Factor in the interest you'll owe on credit payments as well as any upkeep expenses. -- When you decide to make a purchase, check prices at three or more stores first. Buying habits are partly driven by psychology, so remember not to let your emotions bust your budget. ''Never buy out of high spirits, worry, hate or revenge,'' counsels Williams. ''If somebody else in the family spends money foolishly, don't you go and compound the problem.'' Shane warns clients who have trouble sticking to their budgets to avoid the malls when they get the blues. ''People sometimes spend to buy temporary happiness,'' she says. ''Then they get depressed because they spent the money.'' Once you have devised a comfortable spending plan, follow it for three months. Then conduct the first of three quarterly reviews. At each, you may want to restore certain luxuries and curtail others. You could also find that some ordinary expenses are not costing as much as you anticipated. For example, your clothing bills may be lower than in the past, allowing you to add the unexpected cash to savings. After 12 months, your spending habits should be so impressive that'll you'll need only an annual checkup.

BOX: KEY TERMS

-- Asset: Something you own that can be sold for cash or swapped for another item of value. Your house, car, furniture, jewelry, savings, stocks and any other investments are all assets. -- Budget: A written projection of how you want to allocate your future income over a specific time period. -- Cash flow: The stream of money passing through your hands before taxes. When you spend more than you earn, you have a negative cash flow. The opposite is a positive cash flow. -- Liability: A debt. Liabilities can include a mortgage, credit-card balance, home-equity loan, student loan and any other personal loans. -- Net income: What you end up with after subtracting all your income taxes and Social Security taxes from the total of your wages, investment earnings and any other income. -- Net worth: The difference between your assets and liabilities. If your assets exceed your liabilities, your net worth is positive. If not, it's negative.

BOX: THE MECHANICS How to Figure Your Net Worth

To paraphrase New York City Mayor Ed Koch, ''How're ya doin'?'' Determining the answer to that question is the first step in learning to manage your money. You do it by putting together a personal balance sheet that summarizes what you own and what you owe -- your assets and liabilities. The difference between them is your net worth. By finding ways to control your spending, reduce your debt and increase your savings and investments, you will make your net worth grow and have an easier time reaching your financial goals. To figure your net worth, take out a note pad and follow these steps:

1. List the name of everything you own, including your checking and savings accounts, certificates of deposit, money-market fund accounts, cars, furnishings and appliances, artwork and antiques, clothing, jewelry, vested holdings in company savings and pension plans, Individual Retirement Accounts, Keoghs, other investments, cash-value life insurance, and your house, condominium or cooperative apartment.

2. Next to the name of each asset, write down its present market value. For your life insurance, note any cash value.

3. Total your assets.

4. On another page, list the names of your creditors, including your credit- card and charge accounts and the holders of your home mortgage, home-equity line of credit and any other loans, such as ones for cars, college and investments.

5. Next to each creditor's name, write the principal amount still due.

6. Total your liabilities.

7. Subtract your liabilities from your assets to arrive at your net worth.

CHART: NOT AVAILABLE CREDIT: Source: Shires Financial Group, Littleton, Colo. CAPTION: HOW TO START Tracing Your Spending

Fill out this worksheet to start monitoring your income and outgo. Capital gains are your profits from selling investments; mystery cash is money that you spent but can't account for. You can compare your spending in each category with the recommended ranges for three types of households: singles with gross income of $30,000, childless couples with gross incomes of $40,000 to $60,000, and two-children families with gross incomes of $50,000 to $75,000.