Even the happiest couples have arguments: Disagreements on how to raise the kids (I vote for boarding school), how to divvy up household chores ("Oh no, honey, let me clean that for you… again"), or even where to live (like as far away from the in-laws as possible). But those arguments are child's play compared to the mother of all head-butting in a relationship — money.
Managing dual incomes and household expenses gets tricky, and there's no one foolproof strategy that'll work for everyone. If one spouse works while the other stays home, there typically isn't an issue of who pays what and how much they contribute — the working spouse usually handles it all. But when both spouses work and split expenses, coming up with a fair and reasonable plan is important if you want to prevent financial resentmentand money fights from ruining your relationship.
1. Take Inventory
I think it's funny how some spouses can talk about everything under the sun, yet clam up when the discussion turns to money. Sometimes I just want to shake 'em. If I'm talking about you, listen up: You can't keep your head stuck in the sand. For a happy financial life with your spouse, you have to get candid and have these conversations, even though they may be uncomfortable. This isn't the time to be embarrassed about your credit card debt or the fact that you bring in considerably less. Before you can even think about splitting bills, you have to know what's coming in and what's going out.
"Sit down with your spouse and take inventory," says Ashley Feinstein Gerstley, CPC Certified Coach. "While some bills will be different each month, you should be able to come up with a realistic range." This includes adding up your combined income, plus the total cost of fixed and variable household expenses, such as the rent/mortgage, utilities, groceries, transportation, insurances, etc."
In this discussion, you also should decide which expenses to include in the split. You might agree to only split household expenses and make each of you responsible for your own personal expenses like student loans, credit cards, haircuts, or manicures. Which I recommend, by the way. You'll resent your spouse the first time he or she holds these expenses over your head if they're the one footing those bills. Cut back or man up; those are the only two choices you have.
2. Have Realistic Expectations
When splitting bills with your spouse, problems can arise when there are unrealistic expectations. It might seem logical to have a 50–50 split, with each spouse contributing an equal share to joint expenses. But this approach only works when both parties earn similar incomes. Think about this: If you earn $7,000 a month, your spouse earns $3,000 a month, and your shared expenses come to $3,000 a month, splitting the bills down the middle doesn't make a whole lot of sense. This approach ends with your spouse spending half of his or her income on household expenses while you only spend 20% of your income.
David Bakke, a personal finance expert at Money Crashers, recommends a different plan.
"A more fair way to split bills is for each spouse to pay a percentage according to how much they make," he says. "If one spouse makes 65% of the total household income, that's how much of the bills he or she is responsible for."
This strategy ensures there's enough cashflow to cover household expenses, but allows each spouse discretionary income for personal expenses and building their personal nest egg, whether it's preparing for retirement or increasing their personal savings account.
3. Shared Expense Account or Separate Bills
Once you decide how much each person will contribute, the next step is deciding whether you'll have a single account for shared expenses, or pay your own set of bills from your own personal accounts. There's really no right or wrong way to handle this.
With a shared expense account, you both contribute a set percentage and pay all bills from one account. It can work — just know that having a shared expense account means a lot of back-and-forth communication. There has to be enough money in this account at all times to cover your bills, and you must trust that your spouse doesn't take from this account unnecessarily, which can result in insufficient funds and overdraft fees.
Another strategy, which can be just as effective, is deciding which set of bills you're responsible for, and then paying these bills from your own account.
"Under this strategy, each person maintains his or her own separate account and identifies which expenses each spouse will be responsible for, thereby, keeping a black curtain over accounts and maintaining maximum financial independence," says Andrea Rizk, founder and CEO of Risk Public Relations.
This doesn't mean you're out of the loop with regard to expenses you don't pay. Some couples avoid this strategy because they feel financial problems can easily fall under the radar. If their spouse gets behind on a utility payment or the car payment, they want to know as soon as possible. This is perfectly understandable.
So that you don't have any surprises later on, you and your spouse can agree to have your own set of bills, but also agree to manage all shared expenses online. You'll both hold the passwords to these accounts, giving you the freedom to check the payment status of accounts at any time.