Do SOA really help?

peteuk

Jon_B wrote: »

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.

That's life.....but sometimes you can look at an SOA, disconnected to the person posting it and make suggestions to help them. I know some people will pick up on usual suspects, things like Sky TV, mobile phones ect

I would have found it interesting to have people pick through the bones of my SOA back in 2005, sometimes to help me justify why I spend X and also to make me realise where my moneys going.

But I guess your right, we all may think the grass is greener but we dont always think of those worse off than ourselves and seeing it in black and white is powerful.

DandelionPatrol

FBaby wrote: »

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.

There is much more to the SoA than expenditure.

An incredibly important part of the SoA, which many often do not fill out properly is the debts, their APRs and the monthly payments [which also give an idea of how long the debt will run for]

The first part of getting out of debt is to deal with day to day and living expenditure and bring it within the income so that no new debt is created [never mind paying off debts for the moment]. The income and expenditure sections of the SoA shows whether and what action is necessary for this.

The next stage - after stopping new debts accumulating - is to find a strategy to deal with all the old debt, for which the rest of the SoA is essential. This can show whether it is possible to simply work your way out of debt without defaults, whether a DMP would be required or perhaps an IVA or even bankruptcy.

The detail of the debts part of the SoA enables you to plot a way out of debt which you cannot see on headline figures. Sometimes you can see an eyewatering amount of debt, which is more than the income supports, to the point that bankruptcy seems obvious. But then you might see that a significant debt will be paid off in perhaps 6 months, allowing more overdraft to accumulate in the meanwhile, but after the 6 months, the debt becomes sustainable.

As you, FBaby are not in debt, this latter part may not impact on your thinking - if you are saving, your only concern is to keep income lower than expenditure and to bank the rest. But for me, the schedule of debts is the most interesting part - and as I said earlier, it is unfortunate that this part of the SoA often does not get filled out properly.

bennyhill_2

I wouldn't worry too much if you don't have debts and the SOA approach doesn't work for you. What I think people who do have debts find is that they've quite often never actually catalogued where there income is being spent/diverted.

Having it in black and white allows you to analyse where the money is going, sure you may have to factor in some wiggle room each month for one off's etc. Some people don't put any aside for an emergency fund/holiday fund/treat/whatever - but again laying it all out and appreciating that ultimately there are really only 2 numbers that count: net monthly in and net monthly out. If there's a deficit things need to be trimmed (or income raised), and if there's an excess, this can be used to attack debts (if present), to live with, set up an emergency fund etc etc.

Personally I partially blame the education system in the UK - I'm 42 but don't recall ever having any financial education of any kind, and have pretty much stumbled from one bad situation to the next all my working life, despite having always having had pretty well paid work.

Totally appreciate the above is somewhat oversimplified, but simplifying it down can lead to a lightbulb moment. Did for me, I knew ultimately that I was going backwards each month but didn't/wouldn't/couldn't face the reality until i put it all into an XL spreadsheet.

dancingfairy

As a starting point it's great and to get everything down in black an white can help people see the situation more clearly but almost inevitable, things get missed off or underestimated.
I would say maybe more emphasis should be placed on misceallenous/crops out throught the year but then that can be used to hide a multitude of sins. The SOA on Martins main site has more categories that perhaps make you think of things you've left out of the other one, but as a consequence becomes more unwieldy and in my opinion slightly less useful.
df

AliceBanned

FBaby wrote: »

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.

It could only be 'dangerous' as you say, if it is inaccurate in the first place. An accurate SOA can only help to shed light on the truth of the situation, which is one of the most important aspects from a debtor point of view. If it isn't accurate, it isn't really an SOA is it? They almost always need some tweaking from time to time but the SOA goes hand in hand with keeping an eye on where the money is going from that point onwards.


Debts aren't always accrued from 'carefree' spending. Even just not budgeting but not being extravagant at all, over a long period of time, could result in debt because you only have to go a bit over your income to accrue debts. It is really about the full awareness and the SOA is instrumental.

theoretica

Most people who come on here and ask for advice would like some reasonable fast - not after three months of keeping a spending diary. This is why I often suggest going back and looking at the past few months of card and bank statements, a sort of reverse spending diary.

I do agree that the SOA could usefully have a couple more categories. I find it useful to think of monthly one-offs (it might be a trip to the theatre this month, a friend's birthday next, there is usually a book or two) and annual or less often bigger spends (new laptop/car/boiler/washing machine/mattress, courses, sports kit). As you say there will always be something.

FBaby

It could only be 'dangerous' as you say, if it is inaccurate in the first place. An accurate SOA can only help to shed light on the truth of the situation, which is one of the most important aspects from a debtor point of view. If it isn't accurate, it isn't really an SOA is it? They almost always need some tweaking from time to time but the SOA goes hand in hand with keeping an eye on where the money is going from that point onwards.

I think this post sums up my query. Like others, I thought that an SOA was a great tool and ASSUMED an accurate one. The point i am -clearly badly- trying to make is that I don't think the most commonly used SOA format is accurate as it makes it so easy to leave out many things.

I realise that my title is misleading though. The question is not whether doing an SOA helps, it is whether the common format one is really accurate and therefore provides reliable figures when it comes to outgoings.

I thought about posting this because I wondered if it would be useful to remind all new posters who have a go at the SOA as standard that it is very possible they might have left some things out unwillingly and that it would be useful to keep a diary of spending for a number of month and re-ajusting their SOA if necessary.

FBaby

I would say maybe more emphasis should be placed on misceallenous/crops out throught the year but then that can be used to hide a multitude of sins.

I think the main issue is that it is easy to forget things that are paid only once or twice a year (beyond car insurance etc...) and things we don't expect.

miscellaneous should be for the latter. The rest should be picked up to adjust the SOA and make it accurate.

Maybe it might be interesting to take one month and see what has cropped up in people's budget they had not foreseen.

One more that came my way this week-end: my OH arranged an outing as a surprise present, but I had to pay for travel insurance as a pre-requisite. Ok, he could have paid but it would then have just gone on his list! It was only £5 anyway, but it is things like this that I would never have thought of before experiencing it.

Another one this morning, sending a present to a relative abroad. Budgeted for the present, but not the costs of airfare.

Oh, and DS's phone battery died yesterday, £15 to replace. DS came up with a list of ingredients for the cooking class he is doing this term, £5.

Sadly, I could go on if extending to a week rather than just this week-end!

These are all small costs, hence not focusing on them individually, it's when they are all added up that it suddenly becomes a significant impact on the budget.

nearlyrich

The people I have known in real life with debt problems have always had no idea how much they were spending on day to day on their bills. One in particular asked me to help after several months of not opening any post that "looked scary". They had a good job with well above average income but they thought that meant they could have everything they wanted, I have always been a believer in "you can only spend it once". Doing the initial SOA forces the person to confront reality and that can only be a good thing if they are serious about clearing their debts.

DandelionPatrol

FBaby wrote: »

I think this post sums up my query. Like others, I thought that an SOA was a great tool and ASSUMED an accurate one. The point i am -clearly badly- trying to make is that I don't think the most commonly used SOA format is accurate as it makes it so easy to leave out many things.

I realise that my title is misleading though. The question is not whether doing an SOA helps, it is whether the common format one is really accurate and therefore provides reliable figures when it comes to outgoings.

There is more to it than outgoings. The overall position revealed by the schedule of debts in the context of income and expenditure is invaluable in understanding the situation.

FBaby wrote: »

I thought about posting this because I wondered if it would be useful to remind all new posters who have a go at the SOA as standard that it is very possible they might have left some things out unwillingly and that it would be useful to keep a diary of spending for a number of month and re-ajusting their SOA if necessary.

You risk throwing out the baby with the bath water. While your concerns about the accuracy of the expenditure schedule are justifiable, if you succeed in discouraging people in debt from using the SoA format, you will only end up leaving the debt schedule unrevealed.