(MONEY Magazine) – For my last book, You Don't Have to Be Rich: Comfort, Happiness and Financial Security on Your Own Terms, the pollsters at RoperASW unearthed this whopper: 81% of people say that no matter how much or how little money they made, they'd be able to live on it. But half of those people don't pay off their credit-card bills each month. And half don't save anything.

Until very recently, Melanie and William Behrends, parents of two in Pensacola, Fla., were among them. "We've been married for seven years and if we got extra money, we played," says Melanie. "We went out and bought something else. As long as we could make the minimum payments we felt, 'We're doing well.'" Then they added up all those minimums and realized they owed close to $50,000, plus their mortgage and car loans.

The Behrendses had forgotten what it means to live on what you make. If you're not paying off your credit cards, you're living on borrowed money. And if you're not saving, you're living on borrowed time.

Our parents' generation was hardwired to save 10% of whatever they earned for a rainy day. Not us. We may earn a decent living--Melanie and William earn two--but if we spend as much as we earn, on our mortgages, car loans, day care and other "fixed" expenses, our finances simply can't handle an emergency. Time and time again you hear people talk about "the fragile middle class." This lack of a safety net is what makes us so fragile.

To turn things around, follow the money. Here's what you need to know:

What's coming in?

How much will you earn this year, before and after taxes? The after-tax number is key. Budgeting to live on your gross income is a guarantee you'll overspend.

Where is it going?

You probably have a decent idea of what you spend each month on your fixed costs. But I'll bet you have no idea when it comes to variable items, especially those you buy for cash. So for the next month, write down everything you spend. That 75¢ a day you drop into the soda machine at work is $16.25 a month and $195 a year. It's a plane ticket, a car payment; it's real money.

Where should it go?

Once you know where your money is going, you can start making conscious choices about how to put it to work for you. You can put that $195 a year against the Visa bill or you can still spend it on soda. Having the information gives you control.

That's what William and Melanie Behrends have started to feel, thanks to a little help from William's father. He sat them down and helped them see what was coming in and what was going out. Together, they decided to start an account for household expenses and put into it every month $155 for diapers and formula, $400 for groceries, $300 for gas for their two cars and $900 for the babysitter. It hasn't been easy. But Melanie, for one, feels better. "It's time for us to be the parents," she says.

ADDITIONAL REPORTING BY CAROLYN BIGDA