A Road Map to Financial Planning : Budgeting: Some families, experts say, neither know where they stand financially nor where the bulk of their income goes. A cash-flow statement can remedy that.

A financial plan is a road map to get you from where you are to where you want to be economically--to a new home, a comfortable retirement, that sort of thing.

But to get from here to there, you have to know where here is. And to a surprising degree today, people do not know where they stand. In particular, they do not know where their money goes.

As a result, they can do no financial planning because neither they nor their planner, if they hire a professional, knows what they have to work with.

“It’s really a common problem and really a significant problem,” said William Brennan, a personal-finance expert with the accounting firm of Ernst & Young here.

The key to getting a handle on expenses, said Brennan and other financial planners, is a budget, or, more realistically, a cash-flow statement.

This requires a little effort, but it is well worthwhile. Planners differ on the exact time frame and whether to do it prospectively or retrospectively, but the basic idea is this: You pick a time period--three months or longer--and record all your expenditures. You can begin now and do it into the future, or you can sit down with your checkbook and other receipts and look back.

What you are looking for is the leaks--all those little and perhaps not so little expenses that add up to the missing link in your income. Brennan said he commonly sees clients who think they know their income and outlays, but when they put them down on paper “a huge pot of money is unaccounted for.”

“What’s particularly interesting is the clients who, when they first sit down, say they don’t have any money, no cash, no investments, but after expenses, they should have a huge amount left over,” Brennan said.

“We say, ‘Are you sure this is all the expenses? You should be saving $25,000 a year.’ ”

Of course, the answer is that the client is spending a lot of money without really being aware of it, at least not what it adds up to. That is where the cash-flow statement comes in. By tracking outlays carefully, day by day, it becomes clear where the extra is going.

And what do planners find is eating up the cash?

“The key word is eat ,” said Dennis M. Gurtz of Dennis M. Gurtz & Associates, a planning firm here. “Around here you may have two earners; (there) may be fairly heavy restaurant expenditures.”

In addition, he said, “I don’t want to engage in too much pop psychology, (but) people who are working really hard tend to want to reward themselves” by spending money on things like vacations and eating out that “bring personal release from the job.”

Busy people also will spend extra for convenience, he noted. But there is a risk of getting caught in “sort of a circular formula--’I’m working so hard I have to have this housekeeper,’ ” then they have to work even harder to pay for that, Gurtz said.

Tracking all this down isn’t especially hard. For the computer literate, there are a number of software programs that are designed to create cash-flow statements, balance sheets and other financial records. You also can do it on an ordinary spreadsheet program.

But really all you need is pencil and paper.

Lay out columns for the categories of expenses you incur and enter them each day or as often as you can. It’s not crucial to get every penny, but if you put in your cash outlays each day and enter your checks from time to time, you will soon know where your income is going.

Once you know that, then you can begin your real financial planning. It may mean a lifestyle change, but if you ever want to get a little ahead of the game, it may be worth it.

And it will help you with other decisions. Once you see how much you are spending on, say, life insurance, you can decide if that’s the right proportion of your income or whether you might be better off cutting your insurance somewhat and putting the savings into a savings plan or mutual fund.

“It gives (people) the ability to make rational decisions because they now have the facts in hand,” Brennan said.