Q. What is your best advice for balancing income and spending? -- Marvin Baltodano, Sunrise, Fla.
A. With 2012 winding down and 2013 fast approaching, now is an excellent time to focus on the single most effective way to build wealth and gain financial security for the long term: taking control of your spending so you can save on a regular basis.
And, indeed, Fidelity's fourth annual New Year Financial Resolutions Study shows that many people are planning to do just that in the coming year. According to Fido's survey of just over 1,000 adults, a record number, 46%, are considering financial resolutions for 2013, with saving more being the single most popular goal.
So how can you best achieve that worthy aim?
Truth is, there are a number of ways you can get a better handle on your spending and boost the amount you save. What's most important -- and most likely to lead to success -- is settling on a method that's most likely to work for you, given your temperament and your particular financial circumstances.
Some people, for example, find it convenient to use others' spending and savings habits as guideline for their own.
If you fall into that camp, you can get plenty of information about what percentage of their paychecks Americans devote to everything from their houses and cars to entertainment and gifts by going to the Bureau of Labor Statistics' Consumer Expenditures Survey, a compendium of the spending behavior of just over 122,000 U.S households. If you see that your outlays deviate markedly from those of your fellow citizens in particular areas, you can decide whether it makes sense to you're your spending in those categories.
Other people prefer to sift through their own spending, looking for places they might be able to eliminate some excesses.
If that approach appeals to you, you can create your own budget using tips from our Money 101 lesson on budgeting, rev up a budgeting software program or go to an online site like Mint.com, which helps you create a budget based on your past spending habits.
Personally, I've never been a big fan of budgeting per se. I don't think it's especially important what percentage of your income you spend on, say, vacations versus car payments. What really matters is that you save.
So I've long advocated what I call the "Two-line Budget": On the first line you enter your gross income; on the second, put the percentage of that income you intend to save, at least initially. I'd say 10% to 15% is reasonable target, although you can tweak that later one. To make sure that percentage actually gets saved, have that amount automatically deducted from your paycheck via a 401(k) plan or a mutual fund's automatic investing plan.
The idea is that once a portion of your income is going toward savings before you can even get your hands on it, you'll be forced to live on what's left and adjust your lifestyle accordingly. How you do that -- whether you choose to spend more on a fancy car, a nicer wardrobe, whatever is really a matter of personal preference.
There are other techniques you may want to incorporate into your overall spending and saving plan, such as using a "commitment device" to help you achieve a specific savings goal or giving yourself the added incentive of a treat for reaching that goal.
Or you may simply find it easiest to take a knife to big-ticket items in your budget on the theory that they naturally provide the biggest opportunities for significant cutbacks.
Bottom line: If you're really serious about achieving a balance between spending and saving that will improve your long-term financial prospects, I suggest that you find some approach, any approach, that works for you -- and then resolve to follow it in 2013 and beyond.