Your desired privacy settings may be different than mine, depending on how much of your information you want to keep private, and how much you want to share. But it's very important that everyone take a look at their settings, because the default settings are often not what you think. By default, most of your information will be set to Everyone, which is very dangerous.
The Everyone setting should be avoided due to the deeper meaning behind it. Everyone refers not only to all visitors to Facebook, but also other websites and services. Basically, setting your info to Everyone gives Facebook permission to share it with 3rd party applications, websites, etc. Have you ever seen a sidebar ad display a birthday greeting on your birthday? That's because your birthday info is set to Everyone. Take a minute and read this article about the Everyone setting and how it's only going to get worse later this year.
So here's how to modify your privacy settings. To begin, log into Facebook and click Account in the top right corner, then Privacy Settings. This will present you with five categories of settings. We'll go through them one by one, starting with Profile Information. If you've never looked at these settings before, they're probably all set to Everyone. Change each and every one to what you want it to be. Remember to only use Everyone if you're comfortable with it and know what it really means. Personally, I have every single option set to Only Friends.
Be sure to click on Edit Settings next to Photo Albums, too. This lets you set who can view each of your various albums. Again, avoid the Everyone setting.
Next, click Back to Privacy at the top and move on to Contact Information. Here's a place where Only Friends might be too restrictive. For example, some of this information you may want to set to Friends of Friends or even Everyone if it's info you don't mind sharing. But, as with everything, make sure you change each setting to what you're comfortable with.
Click Back to Privacy again and continue to Applications and Websites. These settings are more complicated, so we'll go through them one by one. Skip the What you Share line for now...we'll come back to that later. Click on Edit Settings next to What your friends can share about you. This is a very important one, so read the description at the top and then check off what you're comfortable with your friends being able to share. Personally, I have all the boxes unchecked.
Now click the Applications and Websites button at the top to go back. You can skip the next two settings, and move on to Activity on Applications and Games Dashboard. This one is important. If this is set to anything other than Only Me, then your friends will be able to view all of the various applications and games that you use, and when you use them. Unless you want your friends knowing this information, then I highly recommend setting this to Only Me.
Next, click Back to Privacy and then Search. These two settings are pretty simple...first select who can see your info when they search, and decide whether you want search engines to be able to find you. If this box is checked, anything set to Everyone will be searchable by Google, Yahoo, Bing, etc. If you're at all concerned about privacy, definitely uncheck this box.
That's it for the Privacy Settings. Now on to Networks. Unless you are part of a network that you activly participate in (such as a school network), I recommend not having any networks at all. There have been numerous stories of network based privacy breaches. So if you're part of a city network, work network, etc. and you never communicate with anyone in the network, you should seriously consider leaving it. Click Account again at the top right, then Account Settings. Go to the Networks tab, and make sure the settings are the way you want them to be.
Now click on the Facebook Ads tab. Now, there has been a lot of misinformation about this Ads tab, and you will likely see a notice from Facebook explaining the situation. The only information it will share with friends is the info described on the page. So read over it and make sure you are comfortable with the setting. If not, change it to no one.
Finally, click Account on the top right, then Application Settings. This part is very tedious, but very important. For each of the applications in the list, even basic ones like Events and Notes, you have to click Edit Settings and verify that the privacy settings are correct. This controls who can see what events you are attending, who can see your notes, who can see your shared links, etc. It's very important that you go through each and every application in turn and change the settings to what you want them to be. Be sure to change the drop down at the top to show the full list of applications. Clicking Allowed to Post or Granted Additional Permissions, for example, will show different collections of applications, some you may not even know about. To remove an application completely, click the little X next to it in the list.
You should also click Additional Permissions for each application to view what the application itself has permission to do. Some games, for example, may have permission to publish stories to your newsfeed without your knowledge. I know this is a time consuming process, especially if you have a lot of applications/games, but it's very important, so please take the time to do it.
And that about does it. As you can see, there are dozens of different settings that should all be examined carefully. Depending on how much information you want to share, you'll likely want your settings to be different than mine. But most people don't even know all of these settings exist. Facebook has carefully trained us over the years to post anything and everything, never expecting it to be public. But as the months pass, more and more of our information is becoming public without our knowledge. That's a very dangerous situation. It's up to you to know what these settings are, and how to adjust them.
If you know of any privacy settings that I missed, please share them in the comments!