Sunday, January 11, 2009

How to Split the Finances

Splitting Finances

Lately, I've had some conversations with people about how I split my finances with my fiancée.  Here and I have talked a lot about money and our expectations about how we spend/save it since we started living together more than three years ago.  We have had further talks to see how we will handle things we we get married.  Lots of couples avoid having this talk and think things will just figure themselves out.  That is a complete mistake.  Most marriages fail because of money issues.  It is better to get this topic out front and talk about it than let it stay in the background.

So what do we do?  Our formula is pretty simple.   Lots of people would just split their finances 50/50 but I did not think that was very fair.  So early in the relationship I suggested something different.  If you add up our combined salaries, I make 72% of the income.  I therefore pay 72% of our shared expenses.  Shared expenses are things like rent, groceries, eating out, and household items.  We do not split things like clothing, electronics, student loans, or our individual car payments.  Those our paid from our individual accounts.

So lets take an example.  Let us imagine we take home $10,000 a month combined.  For the sake of simple math, let's say I earn 75% of the income and she makes 25% of the income.

Now lets say our combined household expenses are $3000 a month.   I would pay $2250 a month and she would pay $750.  We used to add up the money to be exact, but it ended up being close to the same amount every month so instead we switched to a model where I pay all the household bills, and she cuts me a check for the same amount every month.  Our expenses have probably changed since we came up with the system, but we figured it is close enough and there is no need to quibble over a few bucks here and there.

When we want to buy things that one person wants, we do not argue about it.  The person just buys it because they have their own money.  So when I decided to buy my new Plasma TV, there really was not any discussion about it.  I just did it.  In fact, she probably pushed me to buy it.  After all, she would get to enjoy it while I was paying for it :)

I find that this arrangement works great.  There literally has NEVER been an argument about how we spend money because we have figured out a system that works for us.  There have been times when one person wanted something and the other person did not and we discussed if it should come from the common fund or not.  But in the end, if one person really does not want it, it would just be up to the other person to buy it from their own funds.

Is this going to change much when we get married?  Not really.  We will probably get a shared account which we do not have now and put our money into that joint account.  We do have a shared credit card where we do put our shared expenses on, but not a joint bank account.  Some of the separate expenses will be combined.  So we will combine our car insurance payments and our medical expenses.  The only real difference we have discussed is how we are going to handle our savings.  We will probably have a predetermined amount we decide to save. This will just be added as a shared "expense" and then put aside.  For example, say we decide to save 40% of our income.  So if we use the numbers in my previous example, we would simply treat the $4000 as a common expense.  I would put in another $3000 a month, she another $1000.  That means I would put in my own account $2250 and she would put $750.  While it may seem like I certainly get to save more money, in reality it does not really work out that way.  Neither of us really spend money, so in the end it does not really matter who ends up with more money as neither of us will spend it.

So what do you think?  How do you split up your finances?  Do you think what I do is fair?


  1. If you two go on a date, how does that figure in to the equation? Would she cut you a check for 28% of the date?

  2. I like this agreement and in fact, my wife and I do something very similar. We kept our own checking and savings accounts when we got married, but did start a joint account. Each month, money is deposited into the joint account based on our percentage shares of income and all common expenses are paid from this account. We also share an online savings account to which both of us contribute. Like you, since we have our own checking accounts, personal purchases are not argued over since the remaining money (after deposits into the joint checking and savings) is our own. Since I make the majority of the income and because my income fluctuates dramatically (100% commissioned), I have urged us to stay away from credit cards. So, we've kept our own cards, never having opened a joint credit card account.

  3. It depends. Normally we would just let one person pay and try to make it even as possible. I would may more often than not.

    For things that weren't really "dates" but just us going out to eat we would handle that by just using out method. When we used to actually add things up at the end of the month, we would just put the date bill into the pot, add it up, and then pay it out of the common fund.

    Now, I don't really think about it because we consider this common expense. She gives me a set amount every month that "covers" whatever we do for the month. Since this is paid out of common, in theory she is paying for 28% of the date. However, since it is a fixed amount, her marginal cost is actually 0.

  4. Sounds like a reasonable system to me. I think you are right that many people do not discuss these issues before marriage. To play the devil's advocate, have you discussed how it will work if you split? And if you have, have you signed an agreement? Because now everything is easy, breesy and you are happy. But let's say 5 years from now you decide it doesn't work. I'm not a lawyer but I think then the state of CA doesn't care about your verbal agreement and doesn't care the you put in 75% of any savings so 50% is hers. And it won't care if you decide to buy a house and you pay 75% of the costs, 50% is hers. Unless you've got a contract in writing. Sorry to be a downer. Been there, done that.

  5. Interesting... I never really thought about this arrangement. I grew up in a household in which my father and the family accountant planned everything. Maybe this is the case because my mother was a stay-at-home mom.

  6. [...] Charles Schwab.  After getting married, my wife and I needed to setup a joint account.  We have split our finances for a while now, and marriage has not changed that, but we wanted the convenience of having one [...]