The first step is denial, and let’s get past that right now. I don’t care what the technicians call it, you and I are facing the biggest economic meltdown in three generations. At this point there’s no further need to define it historically.

For American families, the time has come to deal with it. That doesn’t mean abandoning hope that your husband will find another job pretty soon, or that your wife won’t get laid off this year. But it does mean taking steps to get rid of your debts and reduce your living expenses as much as possible so that you can start saving money.

Because even though everyone out there in government and retail land wants you to spend your way to their economic recovery, you need to set aside as much cash as possible right now to protect your family against the very real possibility of a job loss or a major medical emergency.

For many of you, this means you need to set up a family budget – quite possibly for the first time. Some of you may be rolling your eyes, having taken this step ever since you got out into the work force. But trust me, there are many individuals and many families who’ve been making so much money they really didn’t have to worry too much about how they spent it. And there are many others so far behind the financial eight-ball that they don’t feel like there’s a way out.

But there is, and it starts with making a budget.

You start out with a list. On one side, list your monthly net income. This includes your take-home pay, average monthly sales commissions after taxes, average amount per month you sell on Ebay – all the money from all sources that you and your family bring home each month. If you have very good reason to believe you will receive a bonus or any other type of one-time payment this year, divide that amount by 12 and add the answer to your income list.

OK, now you’re going to list your monthly expenses. Include everything, starting with your monthly rent or house payment, any vehicle payments, all utility payments, including city water/trash pickup bills. Get out a calculator and go through your checkbook and credit card statements and figure out, on average, how much you’re spending for gasoline each month, and add that to your list. Do the same thing for food. Now figure out how much you pay each year for vehicle insurance and registration. Add that together, then divide by 12, and put the answer in your monthly expense list. Now, if you own your home, add up how much you’re paying on home and flood insurance and property taxes. Total those numbers, divide by 12 and add it to your expense list. Do the same exercise to account for life insurance or any other insurance payments. Also include any other expenses, such as child support, alimony, or any recurring bills to doctors, dentists, lawyers, accountants, gym memberships or club dues. Estimate how much your family spends on clothing each year. To be conservative, add $200 or so to this figure. Divide by 12 and put it on your list. Also add any payments to daycare, or any tuition payments or other school fees for yourself or your kids. Use your credit card bills and checkbook to figure out how much you paid over the last year for all home and car repairs, divide that by 12 and add the answer to your list. For any other one-time yearly payments, divide by 12 so you can put it on your monthly list.

Now you may have one more expense – one you will want to get rid of us soon as possible. If you use credit cards, you want to pay off the balance each month. If you haven’t been able to do that, look at your credit card bills and figure out how much you’re paying each month in finance charges. Add that figure to your list.

OK, now it’s time to add up all your income on one side of the list, and add up all your expenses on the other side.

If you have more income each month than expenses, the difference shows how much is available for discretionary spending, which is to say, going out to dinner, seeing a movie, taking the kids to Seaworld or otherwise helping spend the country out of this catastrophe. If you’re smart, you will now start putting 75% of this amount into a savings account, beginning this month.

It’s more fun to go out to a fine restaurant, but the Crawfish Ravioli with Rose Cream Sauce will not tide your family over for a few months if you or your spouse loses your job. A savings account can do that – but you need to consider amassing an amount equal to your family’s yearly take-home income. So take out the budget list you just made, and multiply total income total by 12. That’s how much money you need to have in a savings account, at the least, in case the worst happens. It’s very clear that none of us can afford to put off this step.

If you have more expenses than income, the difference between those two figures shows how much you’re living beyond your means. And what that means is that you’re already in financial crisis mode, and you need to take drastic action to make your expense column smaller than your income column.

I’m probably not telling you anything you don’t already know, but at least you have real budget numbers to work with now. What next? First, to whatever extent humanly possible, stop using those credit cards, or at least stop using the most expensive ones.

Then, see if it’s possible to consolidate your debts at a lower interest rate than what you’re paying separately. If you have more than one credit card, make sure you know which one carries the highest interest rate. The amount of debt you’re carrying on that card is what you want to tackle first. If you have another credit card with a lower interest rate that isn’t maxed out, use the available credit on that card to pay off as much of the debt as possible on any cards that carry higher interest rates. To wean yourself off of your most expensive card or cards, close those accounts. You’ll still have to pay off the balances, but you no longer will be able to use them to put yourself further in debt.

If you can’t do any of those things, call up each of your credit card providers and ask them if they can lower the interest rate on your card so you can pay off your balance. The worst that can happen is that they might tell you no. If they agree to help you out, so much the better. In the past, I probably would’ve advised that you tell your credit card providers you’re facing serious financial problems, like bankruptcy, in order to prompt them to back off on the interest. But some credit card companies now have small print on their customer agreements allowing them to seriously jack up the interest rate if anything significant changes in their customers’ financial lives. Still, the bottom line for them is that they make more money from you if you’re paying them something each month than if you’re bankrupt.

Do not take the advice of a blogger, even me, as your sole source of information. There are many things a good credit counseling agency can do to help you if you find yourself heavily in debt. The problem is that a proliferation of seamy operators has made it difficult to find legitimate agencies. I endorse none of the following, but merely provide this link to credit counseling agencies approved by the U.S. Department of Justice for those living in the Houston area (even though many of these agencies are headquartered elsewhere).

For everyone, putting together an income/expense report is a great first step in gaining control of your own finances. At least now you really know where you stand. From here, it’s a matter of figuring out how to get where you need to be.

Next in Family Math 102: Using a family budget to cut down on expenses