(MONEY Magazine) – Four years ago, Amy Cooper had $5,000 in credit-card debt at an average rate of 18%. Worse, she had zero savings apart from a small 401(k) stash. But the 34-year-old magazine advertising manager from New York City couldn't make any headway on either problem because she really didn't know where her money was going. "I felt I was being left short at the end of each month," she recalls, "and had no good idea why."

Her situation probably sounds familiar. Who hasn't wondered where all that money went since the last visit to the automated teller machine? Face it: Without a firm grasp of what's coming in and where it's going out, you can't set up a realistic budget. And without a budget, saving usually gets shortchanged. "You need to get a handle on your cash flow to achieve long-term goals like saving for a house or building a nest egg," says New York City financial planner Melissa Levine.

Of course, charting your spending can be tedious, so you may need an important goal to motivate you--like the desire to get out of debt and start investing. That impulse gave Cooper all the incentive she needed to track her cash. For a full month in 1994, she wrote down on a note pad every cent she spent, including purchases as small as a pack of gum. What she found surprised her: More than 25% of her spending went for clothing. Another $80 a month was for skin-care products alone. "Clothes were my weakness, by far," says Cooper. By leaving her credit cards at home when new fashions hit the stores and resisting impulse purchases at the drugstore, she freed more than $200 a month to put toward savings and debt reduction. Three years later, she is debt-free and has increased her savings enough to put $15,000 toward her June wedding to software developer Joe Ehrenreich, 39. "The secret was figuring out where I was spending my money," she says, "and then figuring out what I could eliminate."

By heeding the following advice, you too can take control of your cash flow:

--Keep meticulous records. The first step is to get everything down on paper, as Cooper did. "You can't keep track of your money just in your head," says Michael Chasnoff, a Cincinnati financial planner. Credit-card bills and canceled checks tell part of the story but not how that $100 ATM withdrawal got spent. So you need to devote at least a few months to writing down every purchase you make with cash. Obviously, you don't want to spend your whole life doing this. But by painstakingly tracking your spending for a few months, you can vividly see where your cash goes.

--Create a paper trail with plastic. If using credit cards makes you overspend and rack up high interest charges, Levine suggests substituting a debit card, which banks and brokerages are increasingly issuing to their customers. These cards carry the Visa or MasterCard logos, so they are accepted by virtually any merchant who takes the credit-card version. But unlike a credit card, the purchase amount is immediately deducted from your bank or brokerage cash management account. Then the record of your purchase shows up on your monthly statement. Better yet, there's no interest charge to contend with.

--Construct a picture of your spending with this paperwork. Once you compile a list of expenditures, you need to go from a stack of receipts to a complete snapshot of your finances. Add up your expenditures by detailed categories, including everything from rent to clothing to groceries to meals out. Then evaluate your spending, make realistic cuts in categories where you've gone overboard and create a budget.

--Take advantage of electronic shortcuts. Your computer can reduce much of this math and paperwork, plus allow you to track your cash flow on an ongoing basis. You'll need a financial software package such as Intuit's Quicken ($35; Windows, Macintosh), Microsoft's Money 97 ($35; Windows 95) or MECA Software's Managing Your Money ($20; Windows, Macintosh). While you still have to type in expenditures, deposits and withdrawals, that grunt work should take only a few hours a month.

Where these programs excel and save you time is in pulling your budget picture all together. When you enter an expense, you code the entry by type. The programs all have preset categories such as "groceries," "rent" and "insurance." Or you can create your own labels such as "CDs" or "cosmetics" if you want a more detailed analysis. Once you set up your program, the software will remember that a regular check to, say, Nynex, is for the "telephone" category and that one made out to your electric company falls under "utilities." Plus, you can tell the computer how you spent the cash you took out of the bank. For example, if you make a $50 cash withdrawal, you can later designate $15 as "movies," $20 as "babysitting" and leave the rest unspecified.

Once all of your expenses are so nicely coded, you can graphically see--with colorful pie charts and graphs--the total amount you spent on anything in a year or a week and what percentage of your spending goes to each category.

--Hook up with your bank to save time. The newest twist in these software packages is that many major banks allow you to use them to help manage your accounts. This eliminates the one thing that probably stops most people from using personal-finance software to its fullest--taking the time to enter transactions. NationsBank, for example, offers a free home banking service that runs on a customized version of Managing Your Money. (Many banks charge between 99[cents] and $9.95 a month for home banking.) Whenever you dial into the bank via your modem, all of your checking, savings and credit-card (if issued by NationsBank) transactions are automatically downloaded into your computer, although you may still have to do a little manual tweaking to create a personalized spending report. Unfortunately, even these online banking advancements won't help you track your out-of-pocket purchases once you withdraw cash from the ATM.

--Develop better permanent spending habits. Financial software and home banking make it easier to continue tracking your spending. But once you get a handle on where your money goes, you still need to stay vigilant to stick with your goal of saving more or paying down debt. One way to adhere to a budget is to put a cash allowance in an envelope at the beginning of every week. If you spend more than you budgeted, you must dip into the following week's stash and economize then. Amy Cooper divides her allowance into categories, such as clothing and lunches at work. Now that she's got a grip on her cash needs, she rarely dips into other accounts or borrows from the next week's allocations.

You may also find it helps to automate as much of your spending as possible. Working through your bank, you can set up automatic payment plans for many of your bills, including loan payments, cable and utilities bills, and savings. Many mutual fund companies reduce their investment minimums if you agree to have as little as $50 a month automatically shunted from your bank account to a fund account. Both T. Rowe Price (800-638-5660) and Strong Funds (800-368-1030) offer an ample menu of no-load stock and bond funds suitable for automatic investing.

Next installment of Starting Out Smart: July '97