1. First, find out where your money goes.

Write down everything you spend money on for two months: what you bought, the amount, and the date. Don’t forget to include items you bought with a credit or a debit card, or paid for by check. Software like Quicken will automatically track and categorize your spending for you, though you’ll need to manually enter cash purchases.

2. Identify your core expenses.

These include housing, food, transportation, utilities, loan payments, insurance and retirement plan contributions. Again, Quicken can help make this easy by showing you a simple, visual breakdown of where your money goes. 

3. Look for ways to trim your core expenses and free up cash to spend on what you enjoy. For example:

Cut your monthly electricity bill by using compact fluorescent bulbs, turning off the lights every time you leave a room and making sure all your appliances are off before you leave the house. Computers and other appliances draw power even when they are turned off. Turn off their power strips when you won’t be using them for extended periods of time (when you are asleep, for example).

Trim your heating bill by lowering the temperature of your house by five to 10 degrees at night and when nobody’s at home.

Reduce your transportation costs by comparison-shopping for a service station that charges less to fill your tank—and unless your vehicle requires it, stop using premium gasoline. Services like Billshrink.com can help you find the best gas prices.

Look for cheaper car insurance. Premiums can vary dramatically from one company to another, and it’s easy to comparison shop for lower rates online. While you’re at it, make sure you’re getting every possible premium discount. Some insurers offer “safe driver” discounts of 10% to 15% or multi-vehicle discounts if your family uses the same insurance company.

If your car is old, consider dropping collision and/or comprehensive coverage from your policy. Collision coverage pays to fix your car if it’s damaged in a collision. Comprehensive pays if it’s stolen or damaged in ways that don’t involve a collision—if a tree falls on it during a windstorm, for example. But your policy won’t pay more than the car is worth. For example, if your car needs $3,500 of repairs but it’s only worth $2,000, the policy will only pay you $2,000 minus the deductible.

For more savings tips, see: “20 Small Ways to Save Big.”

4. Now consider your non-core expenses.

This category includes everything from small pleasures that feel almost like necessities—like eating out, going to the movies, paying membership dues for a good gym—to major indulgences like a deluxe vacation or a state-of-the-art flat- screen TV.

Rank them in order of their importance to you. Maybe you spend $400 a month eating out, for example. Is that really your first choice for this money? Perhaps you’d rather have that $400 to save toward a trip to the Bahamas. The easiest way to change your spending habits is to make a trade-off you feel is truly worthwhile: Start banking the money you would have spent eating out in an account earmarked for that tropical vacation.

5. Look for ways to trim non-core spending.

Cut expenses you don’t really enjoy to free up cash. For example:

Use only your own bank’s ATMs. Paying an extra $2 or $3 a day to use a “foreign” ATM can cost you about $700 a year.

Stop dry cleaning items that can be hand-washed.

Pay your bills on time and online to avoid late fees and postage costs.

Give yourself a 24-hour cooling-off period before you make impulse purchases. If you’re tempted by a jacket you saw at the mall, for example—wait a day. If it still seems important, go ahead and buy it.

6. Don’t eliminate pleasures that are really important to you.

Instead, look for a less expensive way to enjoy them. A brisk walk around the neighborhood with friends is a cheaper way to exercise than a high-priced health club, for example.

With this plan, your goal isn’t to eliminate non-essential expenses. It’s to get the biggest bang for your buck by making sure that your spending matches your priorities.