The recession means that even the comparatively well-off are feeling the financial pinch.

One problem with so many living on credit is that few know how to create a budget, much less stick to one.

“Americans are financially illiterate,” says Braun Mincher, author of The Secrets of Money: A Guide for Everyone on Practical Financial Literacy. “They don’t teach you how to save or how to buy a house in school, so most people have to learn how to do it for themselves.”

And not very well, apparently, the numbers don't lie:

The Federal Reserve reported that the rate of credit card default increased by 54% from the second quarter of 2007 to the second quarter of 2008. During the same time, past-due payments on home loans increased by 25%. Even payday loan centers are getting burned due to a rise in customer defaults according to Uriah King, a policy associate at the Washington, D.C., based Center for Responsible Lending.

Focusing on a budget may be difficult, particularly if you’ve gotten used to starting your day with that Starbucks (Stock Quote: SBUX) mocha, skim latte or ending it with a big meal at your local restaurant.

“The truth is that we’re going to have to go back to the way our grandparents lived,” says Barbara Stanny, author of Prince Charming Isn't Coming: How Women Get Smart About Money. “Part of that is learning how to put off what you want in the short term and focus on the things that are priorities for you.”

Here are six tips to help you live within your means:

1. Change your mindset. Think that a budget is a ball and chain? Well, it isn’t. No matter what you hear about the market or how many bills pile up on the kitchen table, it is important to keep in mind that a functioning budget is a tool to keep you and your family secure, not a punishment for overspending.

2. Get organized. Now that you’re ready to change your spending habits, you don’t have to be afraid of that unopened mail on your dining room table. Open the mail. Find out what bills need to be paid and start calculating how much you’re spending.  There are lots of free online tools out there that will help. Take a look at our partner site Geezeo to help you get started.

Jennifer Smith, the creator of, currently puts all of her expenditures on her credit card in order to better keep track of them, though she is the first to admit that this is not for everyone. “You have to be very diligent about paying those charges off,” says Smith. “But you can download your transactions onto a spreadsheet using MS Money and get rebates through your card.”

3. Set priorities. The most difficult thing about setting up a budget is learning the difference between a want and a need.

“The best way to learn the difference is to sit down and make a list of priorities,” says Stanny. “Utilities, insurance, your mortgage and food are priorities; things like eating out, leisure and gifts are usually not.”

4. Try it out. Even the best-laid plan is worthless if there’s no activity behind it. Now that you know how much you’re spending each month, and you’ve determined what you need to live on, you’ve got to take the next step and try it out.

“You can’t just make a budget and say ‘That’s it, I’m done,’” says Smith. “You’ve got to start using it.”

Experiment with your budget for one to two weeks and see how well you’re doing. Remember: This is a work in progress, so don’t feel too bad if you slide back into old habits occasionally.

5. Be flexible. Budgets always change. So don’t get locked into the idea that you can’t deviate from your budget, especially when you’re just starting to figure it out.

6. Remember a super-tight budget is only temporary. These are extraordinary times, but that doesn’t mean that things will never change. The U.S. has been through no fewer than 32 cycles of expansion and recession since 1854, according to the National Bureau of Economic research. As a rule, these recessions tend to average 16 to 17 months.  Then people start making money again. You will too.

While that doesn’t mean that you should throw out your budget as soon as you start making a little more money, it does mean that if you manage your income and expenditures wisely now, you’ll have more to invest when the economy does recover.