HOW TO SPLIT BILLS IN A RELATIONSHIP
For many of us, moving into a shared house is our first go at dealing with bills and splitting them. This includes forming good habits like making sure they are paid on time and everyone puts their fair share in.
In most cases, housemates tend to have the similar levels of income so most people split the rent and utilities equally. Many times they will also share food bills. For everything else, they keep their finances separate. Problems tend to arise only when someone leaves without paying their share of a bill, like electricity or telephone.
How do you manage when the relationship is more intimate? When couples move in together for the first time, it can take a bit of working out. How do you split the bills as a couple?
In my experience there seems to be a few standard methods and it really is a matter of working out what works for you over time.
1. The Grab Bag Method
This seems to be the default method. That is, we haven’t really thought about it so let’s just do it. Using this method entails each partner just picks some joint expense, such as the rent, and deals with it. This can be dangerous and lead to resentment when someone eventually realizes they are getting the raw end of the deal. It can also be problematic when the relationship breaks up and one partner is left unprepared to deal with their own expenses.
2. The 50/50 split
This has the advantage of being simple and straight-forward. Each partner picks up 50% of each joint expense but keeps the rest of their money for their own expenses.
This works well for couples who earn roughly the same amount and who may be still getting used to being a couple.
It can be difficult for couples where one earns significantly more than the other. The wealthier one may feel their lifestyle is being restricted because the other can’t afford to do stuff. Conversely, the lower paid may feel the need to spend more to keep up.
3. Income-based percentage split
Using this method each partner contributes a portion to the joint bills based on how much they earn. This works well for couples with a big difference in earnings.
4. Usage Based
Similar to the income proportion, but this method determines the relative contribution based on usage. For example if one partner works from home and needs a home office, she would contribute more to the rent.
This works well for couples where there is a big difference in needs or wants or earning capacity. It can help eliminate resentment that one partner can feel when they end up paying for things that they think they don’t use.
These four methods work best when you set up joint bank accounts or cash kitties to meet the joint expenses so you don’t have to run a spreadsheet or keep a running tally to keep everyone honest.
These methods can be mixed and matched. For example you might split the rent and utilities based on the home office scenario, split the food 50/50 and pay for vacations based on income.
What is important is what works for you.
As time goes by, things can get a bit blurred. But merging your finances is a big step and difficult to undo. I recommend that you retain some accounts and credit in your own name, so that you have your own credit history in case the relationship breaks down.
Buying a home and having children is often the stimulus to complete the merge. It is certainly simpler to work from an “our” account than to try splitting it between “yours”, “mine” and “ours”.
Not only should you keep some accounts in your own names, but I also suggest you keep an allocation to personal spending. This is an allocation in your budget that is transferred to individual accounts to be spent how you please. No questions, no guilt and no explanations necessary. How big it is, is up to you.
This will become particularly relevant if you step down to one income if one of you decides to stay home for a while and look after the kids. For the stay-at-home partner, having their own money is an important psychological boost.
A system that works for you
There is no right way to manage your finances as a couple that works for everyone. If one partner earns more wants to contribute more to the household, then that’s OK. Alternatively, they may not think they should pay more. Either way, be forthcoming and share your concerns.
Some couples choose to maintain separate finances for life, so don’t base your approach based on what others are doing or worse accept that only a complete merger of finances is the true mark of a great relationship. Do what works for you.
You can always change your mind. So go slowly. If the 50/50 split works for your relationship now, before deciding to merge your finances, then give it a go.
There is no set formula for the perfect way to split bills that works for everyone. You just need to be open, honest and flexible.
Vince Scully | LifeSherpa
With over 25 years in Financial Services from consulting to management, Vince Scully is the go-to guy for wealth management and financial advice. Vince founded the Calliva Group; a fund manager, product issuer, advisor and lender to Government and private clients. Vince is an advisor to the Wealth Management Industry, and prior to his role as CEO at Calliva, a senior member of Macquarie bank’s infrastructure team.