Multimedia: A Changing Economy

Prices have gone up on many items in the past five years forcing consumer habits to change. See how through an interactive graphic, video and more.
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Worried about their jobs, tumbling home values and shrinking retirement funds, consumers have become more cautious about spending their money. The first step that experts recommend is drafting a plan.

Budgeting is like dieting — both are generally disliked and viewed as a negative constraint — said Charles Maxey, dean of the business school at California Lutheran University.

"A budget is not a diet; it's a plan," he said.

Creating a budget is easy; sticking to it is the tough part, he said. Budgets let people keep records of where their money is going. By tracking expenses, consumers can look at their spending habits and eliminate unnecessary items.

"There's a discipline to it," Maxey said. "It's a very useful tool." For Jackson Grisales of Santa Paula, budgeting means distinguishing needs from wants. He's trained himself to steer clear of beer, which he now considers a luxury. Instead, he shops for basics, such as milk and potatoes.

"I have to budget more," he said. "We're just trying to ride it out."

Though people might start with good intentions by making a list of expenditures, Maxey thinks few probably stick with it.

Why don't they?

"It's depressing, isn't it, to examine where money goes and see that it doesn't go that far," Maxey said.

It's also getting harder and harder to keep a budget, Maxey said, because people are spending money in so many ways that it's difficult to track. Many households have multiple bank accounts and credit cards.

Online resources

However, there are tools, such as online banking, that make budgeting easier.

Wells Fargo offers My Spending Report free with its online banking service. It automatically categorizes a customer's expenditures, breaking down how much is spent in different categories, including gas, groceries, healthcare, restaurants, pet, retail department stores, utilities and phone.

Wells Fargo has 9 million active online consumers, and more than half use My Spending Report, up 18 percent from last year. Sixty-three percent of its customers use online bill payment.

The system simplifies the budgeting process, said Marla Vasquez, Wells Fargo Pacific Coast Community Banking president.

"The spending report captures everything on a monthly basis," she said, adding that the tool helps her stick to a budget and stay organized.

Another online resource is the home budget calculator at http://www.bankrate.com.

Vasquez described budgeting as a "lost skill." From what she's heard from schools, it's not supported like it used to be.

While some people probably don't know how much they spend a month on groceries, Vasquez knows the total to the penny.

A behaviorist would say that if people don't know, then they probably don't care, Maxey said. But that's not necessarily true for some people, who perhaps were never taught to examine their spending habits.

"From what I hear, it's on their minds," said Vasquez, referring to Wells Fargo customers. "Especially in challenging times like today."

The upside, however, is that she sees them seeking tools to simplify budgeting.

Easier to budget with cash

Knowing how much you're spending is important so there aren't unwelcome surprises at the end of the month. For example, paying for purchases with plastic can prompt overspending.

Maxey believes that sticking to a budget is easier with cash. You can feel your wallet getting lighter as you spend money; there's no indicator with plastic, Maxey said.

Also, some people pay for things they don't use. Electronic bank deductions make it easy to sign up for an online membership, Maxey said, but it's just as easy to forget to cancel that membership.

With almost everyone using credit these days, he emphasized that it's important for people to avoid late charges on credit cards because that could hurt their credit ratings and mean paying higher interest rates.