Even though your paycheque seems to pull a Houdini act and disappear just days after being deposited, you may be loath to sit down and actually figure out where all your money goes. Instead you'll bemoan the high cost of living, endure moments of panic and hope that soon your barely existing bank balance will magically grow. But the real trick to saving more is to create a budget and stick to it.

Laurie Campbell, a program manager with the nonprofit Credit Counselling Service of Toronto, compares budgeting not to sorcery but to dieting. It requires careful planning, can feel restrictive at times and may take a while before you see results, she says. But just as when you drop a dress size, when you lighten your debt load, you feel great.

So if your money has a habit of slipping through your fingers like a magic coin, here's a simple four-step process to help you keep on top of your spending.

1. Establish a savings goal.
If you're going to go on a diet but have no idea what your ideal weight would be, why would you bother dieting in the first place, asks Campbell. Similarly, the first step toward creating a budget is to set a goal: it could be putting away a fixed amount in your RRSP every year, planning a kitchen reno or paying for your child's braces.

Or maybe you've used $15,000 on your line of credit and you want to pay it off in two years. Your goal would be to apply $625 toward that debt every month. Setting a goal lets you keep your eyes on the prize. "It's the entire reason for the budget and keeps you motivated about saving," says Campbell.

2. Track your spending.
This is the time-consuming part. For a month or two, you and your spouse should each write down every single cent you spend -- from the 75-cent newspaper you pick up on your way to work to the bag of chips you buy at your kid's hockey practice. Add it all up at the end of the month and apply this total against your net earnings to see if -- and how much -- you may be coming up short.

Nine years ago Audrey Hensen, 44, and her husband, Rick Hughes, 46, created their first budget to finance Audrey's 4-1/2-year leave from her job as a teacher, so she could stay home with their three children. The couple bought a simple accounting book and divided their expenses into various categories -- fixed costs (such as mortgage payments and car insurance), household expenses (such as utilities), food, clothing, discretionary spending, etc.

If you want to go the high-tech route there are software programs, such as Intuit's Quicken and Microsoft's Money, that allow you to track expenses, or you can simply log everything onto an Excel spreadsheet. Do what works best for you.

To track daily expenses, stick a Post-it note in your wallet and jot down all your purchases. Then transfer them to a notebook or software program once you're at home.

Page 1 of 2 -- Discover more great tips to creating a budget on page 2.

3. Calculate where to cut.
Here's where your real work begins. It's time to evaluate each category and determine how you can trim, or slash, expenses. You may be surprised by how much money gets gobbled up by seemingly inconsequential things -- going grocery shopping without your list (or when you're hungry) might eat up $50 more than usual; the Friday night dinner, movie and babysitter combo can set you back $150.

Audrey and Rick examined their spending and came up with a list of items to cut. They made some big changes -- getting rid of one car, for example -- and a slew of smaller ones. They shopped at discount food stores, Rick stopped buying coffee out every day, and Audrey discovered the advantages of hanging out laundry instead of running the dryer. Because of changes like these, they were able to live on one income until their youngest child was ready for school. By carefully examining your expenses, you'll find there's room to pare down almost any budget.

4. Review and assess continually.
Now that you've got your budget in place and you know exactly how much to allot for things such as clothes, groceries and insurance every month, the next step is to keep yourself honest by continuously reviewing your financial affairs.

Regularly assessing your budget lets you see if you're getting closer to your goals. That, in turn, helps you shed bad spending habits that had you living paycheque to paycheque. "Once you create a new pattern of spending for a few months, it becomes ingrained in your lifestyle and you'll be able to meet your goals," says Campbell.

After the first month or two, you won't have to write down everything you spend in order to keep your budget on track.

3 budget busters
Despite our best intentions to stick to a budget, it's easy to fall off the wagon and spend money we shouldn't. Beware of these potential pitfalls.

1. Gift giving. Not surprisingly, the holiday season can be the worst time for people who are trying hard not to overspend, says Laurie Campbell of the Credit Counselling Service of Toronto. "We can go over the top buying presents for people, because it's emotional spending," she says.

2. No emergency fund. Not having money saved for emergencies (such as a new roof or car repairs) can derail your budget.

3. Budgeting too well. A budget that's too restrictive can make you yearn to break loose and indulge in impulse spending. So allow yourself some small indulgences.

What to do if you slip up?
Not sticking to your budget is a lot like falling off a bike. The best thing to do is get back up and riding again. "Don't be too hard on yourself," says Campbell. Just start fresh and figure out how you can do better next month. If you've racked up expenses on your credit card, for example, make a commitment to either not use it next month or keep it at home. "The key is to learn from your mistakes."

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