The danger of surprise money

One of my children has a disability and so my wife receives Carer’s Allowance each month. It’s not life-changing money, but it helps offset the fact she can’t have a normal job that would require childcare.

According to the rules of Carer’s Allowance, she cannot earn more than £120 a week through additional work. So when we informed the tax man she was earning £60 a week (as an FYI), we thought nothing would change. We were wrong. HMRC took a year to recognise £60 was less than £120. Fortunately we didn’t depend upon this money otherwise we would have been screwed.

The back payment ended up being close to two grand, which was a nice chunk of change. When it arrived we made the mistake of thinking: “Oooh, here’s some unexpected money. What shall we do with it?“. Before too long, with our YOLO hats on, we booked a trip to Disneyland Paris. Money gone.

I’m only just realising how often we act this way. We’ve developed a bunch of mental hacks that make it OK to spend money that arrives in unexpected ways, as though that money isn’t as investable as normal wages.

I’ve noticed I trick myself with how I spend the money too. I usually spend money on debit cards so I can track it more accurately. But when I do this naughty “it doesn’t count” spending, I tend to use our master current account, which we only use for direct debits. It’s a sneaky hack to make the spending less visible to our future selves.

Like alcoholism and other addictions, recognising the problem is surely the first step towards a solution. I’m not sure how to tackle this, but certainly I need to start treating all money equally. Perhaps the trick is to get it into investments as soon as possible.

If anyone has encountered similar challenges with their own finances, please let me know in the comments.

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2 Replies to “The danger of surprise money”

  1. Getting a large sum at once can be challenging as it is only human nature to promptly want to spend it (life for the moment).

    A similar phenomenon happens with physicians. After years of training and getting low paychecks your salary jumps a lot (5-10x) and those first deposits make you want to go out and splurge.

    A good rule I have come across is that any bonus money should be treated as such: 10% can be blown on splurges and the rest invested.

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