Do SOA really help?

FBaby

I've been lurking here for some time, not in debts, but always up for any advice on savings and therefore tend to focus my attention on SOAs threads and try to apply some of the recommendations.

Over the years, I have read a number of SOAs for inspiration, but have concluded that I am not convinced they are that helpful as my experience is that it is so easy to forget about some costs that don't forcibly fit within the headings, usually things we take for granted.

For interest, I took on the exercise of writing what I spend on a daily basis for a month and then did it again two different months and what I learnt from it was much more valuable than doing an SOA. I realised that I had left out quite a number of things, and that all three months were quite different, mainly because of many items that I buy only once or twice a year that are easy to forget about.

For instance, the last month I did it, I had spent £45 on make-up (only do so once a year), then £15 on prescription goggles as I'd taken up swimming and then a new swimming suit (£20). I also paid £10 towards a colleague birthday and £20 towards a leaving do meal. I had to pay for DD Duke of Ed awards (something around £25) and hiking shoes (£25). I hadn't thought of putting it under 'activities' because it is not one she does regularly. That only amounted to almost £150 that I hadn't factored in at all.

There were quite a number of other items that came up as 'ones off', and I was quite shocked at how much they amounted at the end of the month. I realised that it is those that leave me confused at the end of the month when somehow, I don't have the amount left on my account that I had anticipated at the start.

All this to say, I found keeping a daily diary for a number of months much more valuable to assess my financial position than a one off SOA.

KiKi

I think the key is that they serve different purposes.

An SOA is useful for those who've never looked at basic bills which may be paid by DD, for CC payments, interest rates, and annual costs that you have to pay for. It's a good marker for realising how much you owe, and how much you spend on big ticket items which you could cut down. For many people who have NO idea how much they even earn, or how much they spend on bills each month, this is a really useful exercise.

A spending diary is the second step, really - what you *actually* spend each month on the day to day stuff. Yes, you could include bills, but it doesn't tend to look at what you pay in terms of interest rates for CCs, for example, and it doesn't take account of annual bills that an SOA will prompt you for - if you did a spending diary in Feb and March you probably won't remember that you have Christmas to pay for! The biggest thing is that spending diaries take time. You need a good couple of months to see what you're really spending on - and some people don't have this luxury.

Some people who are really in debt need to make some urgent, big cuts now, which can be done for utilities, water, CC rates, phone, TV, internet etc. Then when they can see how much they should have left after bills are paid, they can keep a spending diary to see what they actually spend, and start there. But trying to tackle the big bills each month AND what you spend every day can feel overwhelming for some people - so an SOA is a useful starting point. But you're right, it doesn't tell you everything. Neither of them do!

JMO!
KiKi

sourcrates

I think it's a starting point for people who are in serious debt, and who have never budgeted properly in the past.
You can never really account for everything you spend, but as long as the basics are sorted, essentials, utilities, council tax etc, then it gives you some idea of where your money goes.
I agree your actual spending may be way off the mark, I know mine was, there should be a section entitled "impulse buys" as that must crop up a hell of a lot !!!!

FBaby

I can see your points, but my experience of reading posts is that new posters often do seem to use it as a mean to understand their spending habits and get a sense of security at what it tells them they have left to spend/use towards their debts.

From that perspective, I think it could almost be a dangerous tool for posters who are in debts as a result of poor budget management (which I would think is the vast majority) if they don't understand that they most likely need account for another % of 'extra spending' which could range from little to high depending on their needs.

I suppose I thought of posting because it really came as a surprise to me. I am fortunate to be in a good position to look at my budgeting for the purpose of saving rather than paying debts, but the process is similar. I had to learn how much I spend on things that I never thought of and then decide whether I preferred to spend on these or save.

I find that at times, I am more willing to focus on saving, and others on enjoying my income, but even though in both cases I will pay all my regular bills each month, the difference at the end of the month is quite staggering.

Bills need to be paid, and even though savings can be made there, I think that for people whose debts have stemmed from carefree spending, focusing on a daily diary is where the highest saving is likely to be made.

PasturesNew

The SOA is a guide that helps them to have a starting point. Once written, they can start to compare their declared SOA against what they're actually spending.

e.g. in your case if you'd written an SOA out then gone out shopping you'd have at least mentally registered that taking up swimming, buying goggles, buying a swim suit, then the cost of the swimming and parking/transport might not be how you'll be reducing your outgoings and spending less



So it's just a starting point and focus board.

It helps people to separate the needs, from the wants.

andyfromotley

They are a starting point. Usually they highlight that theoretically the person should have a comfortable amount remaining after paying everything or equally that they are insolvent and trimming the budget won't resolve the matter.

I find Ynab and its zero based budgeting much more useful for month to month living. Then if i have to spend one off's like your hiking boots, i have to find a way to pay for it in my budget. This makes me focus enormously on what spend my money on (and what i choose not to) It also means i know where every single penny is going.

So as a rough snapshot SOA's are useful, as a day to day budgeting tool they're no good.

uncreative

^^ This.

SOAs are looking back at what you have spent and using that data as a forecast at best to use for the current month, but YNAB makes you plan forward a month and stick to a budget literally to the penny. Thats why I keep personally going on about YNAB as it forces you to plan in advance for a month (or whatever your pay period is) and the minute you overspend it forces you to think about it rather than a monthly post-mortem on where the extra money went.

peteuk

I would agree with most of the posts above...

SOA is a good tool to show how much you can budge with once your bills, debts ect are paid. It is also the basis for a DMP to calculate the amount affordable to use to pay off debts.

Keeping a dairy of everything you pay for is also a great way of looking at your finances. But you have to ensure everything is documented, even to the coffee shop stop you've treated yourself to.....

For me its horses for courses, SOA is a starting point....

FBaby

SOAs are looking back at what you have spent and using that data as a forecast at best to use for the current month,

But that's my point, I don't think it does that because I think it makes it easy to leave out a lot and gives you a false sense of what your monthly outgoings are.

If it tells you that you have £500 left to pay towards your debts, but the reality is that you didn't account for £200 as an average through things that you don't spend on every month, then it is going to give you a distorted view of how you can clear your debts and give you a false sense of reality.

I have read quite a few posts when people say that despite doing an SOA and sticking to it, they don't understand how almost every month, they aren't left with what they should which leaves them feeling despondent.

I think if you are going to seriously tackle your debts that you are much better spending maybe a couple more months getting a true idea of your total spending so you can get a realistic idea of what you can really put towards your debts repayment. Of course, nothing stops you cutting down where you can in the meantime.

KxMx

I think an SOA is the first step and people need to move onto the second step which is a complete and comprehensive spending diary. Cash, bank account/DDs, credit cards, debit cards, other etc.

I've graduated onto step two recently because while I was seeing some of what I should have left, i'm not seeing it all and I can't account for it.

Jon_B_2

Most people won't admit it, but it is a tool to satisfy a perverse curiosity at other peoples finances and to give them comfort that somebody is better or worse off than them.

They then get satisfaction out of pointing out frivolity is ones budget without the primary understanding that after debt some people value certain luxuries over others.