No matter how many times you’ve said it—and you know who you are—nip it in the butt is NOT the correct phrase. Nip it in the butt? Ouch! If you must use this cliche, then use it properly: Nip it in the bud. Still painful but at least correct.
The Phrase Finder, a Web site I’ve never used before, gives an eloquent, and seemingly well-researched, explanation of the phrase. You can read it for yourselves here, but to summarize, in 1595, Elizabethan dramatist Henry Chettle used the original phrase, which was nip it in the bloom. In 1607, it appeared as nip it in the bud.
When you nip something in the bud, you stop its growth, as you would do in order to stop the growth of a plant bud by nipping it.
I don’t even want to think about what you mean if you’re talking about nipping something in the butt.