How to split finances with your partner
How do you split your finances with your partner?
Couple's finances can be a source of anxiety, stress or awkwardness. This can also be amplified if there is a disparity between each partner's income. I sometimes hear about other couples having arguments or stressing over who owes what and I always wonder to myself - how do they handle their joint finances? What is working and what isn't?
Therefore, I wanted to share some thoughts on different approaches you can take, and what I think of them. I am by no means an expert and you may disagree (which is fine!), but my aim is to simply discuss the common approaches, and the pros and cons I see in them.
Before I dive in, I think the most important thing above any system is having an open, honest conversation with your partner. Be honest about what is working, what is not and discuss calmly how it is affecting you or your other half.
Split 50/50
Perhaps the simplest method to splitting your finances is to split 50/50.
I think this is often a very popular approach because it is natural to think this is the 'fairest' approach. Each partner in the couple is contributing the exact same amount.
However, I personally think the challenge of splitting finances 50/50 arises if you have a difference in incomes.
Allow me to show a worked example:
Try it yourself - Check out my template linked at the bottom of this post
In this example each Partner is contributing exactly half (50%) toward household bills. But because there is a big difference in gross incomes, after the bills are paid, Partner A's net income is £1,250 whilst Partner B's net income is £250.
This is a very big discrepancy and you don't have to think hard about why this could cause stress. If Partner A wants to go out to restaurants or go on holidays abroad, this is perfectly reasonable with such a sizeable disposable income. Whereas Partner B would struggle to enjoy the same level of luxuries.
Some people may argue this is okay. Because if Partner A wants to go and do expensive things that they can 'treat' Partner B to it. And whilst I agree that is a lovely gesture, if this repeatedly happens I can only envisage it resulting in discomfort and guilt in Partner B.
Despite this drawback, I think this approach thrives for a very good reason: new relationships.
In new relationships (maybe <= 1 year?), you are still building trust and not yet fully committed to each other. In such cases, the concept of 'shared finances' only really applies to going out for meals, dates and perhaps weekends away. Therefore, whilst the pay-gap issue could still rear it's ugly head, it is not as problematic because you do not have many shared financial responsibilities such as rent, bills, holidays and so on.
Split by Earning Power
Splitting by earning power is the method of paying in line with the proportion of household income you make.
Let's continue with the previous example:
In this scenario then, instead of each partner paying 50%, Partner A who earns proportionally more in the household (66.7%) pays the equivalent proportion towards the household expenses. Partner B in turn pays their share of 33.3%.
The result here is the the net incomes of each Partner are more balanced. They are both contributing to the household bills according to what they earn and can reasonably afford.
Notice here that there is still a discrepancy in net incomes, and so it doesn't completely eliminate the problem, but it has eased it. Partner B has relatively more disposable income, and whilst Partner A's net income has decreased it is still very strong.
If you take a step back for a second, you will realise that this method is akin to many countries' tax systems - what they call a Progressive Tax System. Those who earn more, pay more. The more you earn, the higher rate of tax you pay (for example in the UK the bottom rate of tax is 20%, the top band is 45% if you earn over £150,000).
Completely Unified
Complete unification of finances is another approach to splitting finances. Instead of thinking of your money as Partner A's and Partner B's, you think of it as a joint, household income.
The obvious merit to this is that it defeats the challenge of pay discrepancy. Because you just look at your total income, not what each individual earns.
However one potential issue I sometimes observe with this approach is that you can sometimes have a lack of 'independence'. This is largely anecdotal from what I see amongst married couples, but what I often see is that neither partner in the marriage feels like they can 'justify' a personal expense.
Say for example Partner B wants to treat themself to a pair of new trainers that are relatively expensive (but affordable for their joint income) - they may feel guilty or like they need to justify and/or discuss the purchase with Partner A first.
For some purchases, this effect can be a good thing. For example for important and expensive things like cars, holidays, furniture and so on, it is valuable to be held accountable and discuss with your partner.
However, I think it is healthy to still retain some independence as an individual in the relationship. To be able to say 'sod it, I want to buy these trainers' and enjoy it without a democratic discussion.
Despite this challenge, I think it is still a solid approach for splitting finances, with the caveat that it is appropriate for couples in serious, long-term relationships. This is in contrast to the 50/50 approach discussed earlier, which is more appropriate for early-on, less committed relationships.
What I Do
My fiancée and I currently split our finances by the second approach discussed, which is by earning power. We do have a pay discrepancy (42:58) and so we feel like this system is fairer than splitting 50-50.
What I like is that we each feel like we're contributing fairly according to our ability to pay, whilst retaining our independence - the money left over after household bills and expenses is each to our own. I can go crazy and buy Pokémon cards, Fifa or the latest Adidas trainers with what's left if I want to!
However at the time of writing this article, I am engaged to be married. So I suspect in the near future, we may reconsider our financial approach to be completely unified. I personally feel like the solidarity of commitment that marriage provides, as well as thoughts to the possible future of kids, means we will start to see our money more and more as completely unified. But as I mention above, if we do move to this approach, I want to ensure we still retain a degree of independence.
So much like anything in life, my views may change over time, but for our situation right now, I think it works well and I will be sure to post again if and when my views change!
What's your setup?
Before you leave, please consider commenting, instagramming or emailing me what your setup is. Is it one of the 3 approaches I've described above? Or is it something else? What challenges do you face?
I love hearing how other people approach it, and it is often very educational. So please share your thoughts!
Links & References
If you wanted to play around with the demo spreadsheet I made to see the effect of different splitting strategies (50:50, 60:40... etc.), then here is a template I made:
I explored reddit.com/r/personalfinance to see what the internet's thoughts on this are and they are mixed, but from what I can tell they tend to fall into one of the 3 approaches discussed in this article. Above all else though, the best comments always acknowledge that having an honest conversation with your partner is most important.