How to Split Expenses Proportionally to Income as a Couple
Money is an uncomfortable topic for most people but is a must for any long-term relationship. The lack of open discussion may have you wondering how couples should split expenses. Studies show that money is one of the top reasons couples fight and is a leading cause of divorce. However, the more openly you talk about money with your significant other, the easier it gets with time.
When you get married or move in together, how to share expenses will be one of the first issues to come up. Some couples may split expenses 50/50, which may seem unfair if their incomes are unequal. Some, like my husband and I, contribute a percentage of our income to a joint account which we then use to take care of all our living expenses, including paying the mortgage, grocery shopping, and other utilities. We can use the funds left in our personal account as we see fit.
Contributing towards a joint account is a less complicated way to share the financial burden of our day-to-day expenses while still maintaining some financial independence. Each person’s contribution to the joint account depends on the income earned and other financial obligations one is already taking care of, such as student loans.
Strategies on how to effectively split expenses proportional to income
If you are considering splitting expenses according to income, use the following steps:
1) Establish each other’s financial situation
Schedule money dates with your partner to get the conversation going. During these dates, have open discussions to understand each other’s current financial situation, feelings about money, and priorities. Setting these dates in advance is essential so that each person gets time to prepare and avoid feeling overwhelmed.
Some topics to handle include income, savings and investment, debts, credit scores, employer benefits, and money experiences growing up. Future aspirations and goals are other topics you can’t ignore because they will significantly impact your finances now and in the future. You must let your partner know if you plan to return to school or buy a house. However, you don’t have to cover all these topics at once. Set recurring dates, maybe once every month or bi-weekly, to keep the conversation going.
Make such dates fun, and always remember to be open-minded and honest. Avoid judgment so you and your partner can learn from each other’s mistakes and plan together for a stronger financial future.
2) Determine the percentage contribution of each person
Once you understand each other’s financial situation, priorities, and other future goals, the next step is to determine how to share costs and fund joint goals.
It is common for couples to have varying salaries. Sometimes the amounts vary widely and saying you will split the mortgage bill 50/50 is ridiculous. Also, in some cases, one partner may opt to take a low-paying job because it requires fewer hours, so they can be home to take care of the kids.
Thus, splitting expenses proportionately to your income is probably the fairest way. Do some simple math. List all your expenses, from utilities to groceries to insurance to the mortgage, then talk salary. If you make $70,000 a month and your partner makes $30,000, you will contribute 70% towards the expenses and your partner 30%. Use gross income to ensure fairness.
Once you determine the percentages, automate deposits from your accounts to the joint one. Review your expenses during your money days, make adjustments when needed, and be ready to adapt to changes.
3) Consider other factors
Since you determine the contribution percentages using the gross income amount, it is also vital to consider other financial obligations that one may have. For example, if your partner is paying student loans, the deductions may affect their overall take-home amount. Some people may sometimes help their partners pay off debts they already have. So to ensure a fair process:
Decide who pays for what: Once you have decided how to pay for shared expenses, the next thing is to figure out how to pay for previously incurred debts. For example, if one person has student loans, how will they pay for them? How will it be handled if another has a credit card loan from before you got involved? The key here is to talk about it and agree on the best way forward as a team; this way, one partner won’t feel more burdened.
You could readjust the contribution percentages so that the person with fewer financial obligations contributes more until the loans are paid. However, if your partner insists on taking on their fair share of the expenses, find creative ways to help them. For example, you can take the burden of paying for the ‘fun’ stuff from your personal account to ease the burden.
Savings for the future: Now that you are working as a team, aligning your savings goals is essential. If you have plans to get an MBA or buy a house, let your partner knows about these plans and is on board with them. When you save towards a common goal, you will get there faster.
Commit to an amount you are both comfortable with and enable auto saving. Again the key here is open and honest conversations. Don’t forget to take into account your 401(k) contribution. Talk about how you will meet your obligations and whether the current contribution amount needs to be modified.
Investing: We all have different risk appetites. For example, I am not a risk taker. I prefer working with the familiar. With investing, I like low-risk high-yield savings accounts and money market accounts which generally offer low returns on investments (ROI). On the other hand, my partner has a high-risk tolerance and is very aggressive with his investing. To find a middle ground, we sat down with an investment advisor to create an overall strategy that we were both comfortable with.
While it’s okay to seek help, it’s also okay if you choose to do it yourself. Always ensure you know where and how your money is invested and how it’s performing.
Pros and cons of splitting expenses proportionate to income
The advantages of splitting expenses as a couple using this method include the following:
It presents a fair way to contribute to household expenses.
You can retain your individual account and spend the remaining money independently. A little independence will help you avoid financial disagreements if you have different money personalities.
It allows for more flexibility. You can rely on your partner to take up a more significant portion of the expenses if you go to school, start a new business or go on parental leave.
It creates shared goals.
The downside of this method includes:
The partner earning the lowest amount will be left with less money for personal use, leaving them strapped for cash.
Individuals may also see having separate accounts as a way to avoid communication about finances. Lack of accountability may lead people to make poor financial choices.
Also, some partners may feel they are contributing more than their fair share, which may lead to resentment.
The bottom line
Managing money is more than just splitting expenses. You need to ensure that all money management duties are shared equally. Thus, make the money date a regular occurrence to ensure everyone is in the loop with what is happening. Suppose changes in income levels or expenses need to be adjusted. In that case, the dates will allow you to work as a team. There’s no one right way couples should split expenses. Above all, open communication and honesty are the number one way to ensure you work towards the same goals.