My Money, My Choices
Gail Vaz-Oxlade is a personal finance writer, television host and radio broadcaster. Every Wednesday, she arms Metro readers with tips to keep spending in check.
Splitting the bill the fair way: Why the higher earner should pay more
It comes down to math: The first step is to add your net incomes together. Then divide each individual income by this figure and multiply by 100.
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Whether you’re planning to live with a mate or officially tie the knot, it’s a good idea to have a chat about how you’ll manage your incomes as a couple.
While many people just split everything 50/50, I believe a proportionate splitting of joint expenses is fairer.
Let’s take the example of Chris and Alex. Alex makes $65,000 a year, and Chris makes $40,000 a year.
Splitting the bills 50/50 would mean that Chris ends up spending disproportionately more income on joint expenses, leaving little or nothing for individual goals such as savings or travel.
That’s why a proportionate split is far fairer; it leaves money in each pocket for savings, managing individual expenses and having a life.
Use net numbers for this calculation. Since a higher income earner will pay more in taxes, using gross numbers isn’t fair. So start with how much you each bring home a month — the money that actually goes into the bank account. So that $65,000 gross turns into $52,000 after taxes, or $4,333 per month, and that $40,000 gross turns into $34,000 after taxes, or $2,833 per month.
The first step is to add your net incomes together. Then divide each individual income by this figure and multiply by 100.
When Alex and Chris add their monthly incomes together they get $4,333 + $2,833 = $7,166.
Time to divide Chris’s income by that $7,166 and then multiply by 100 to get a percentage: $2,833 ÷ 7,166 x 100 = 39.53 per cent, which will round nicely to 40 per cent. Which means that Alex will pay 60 per cent of the expenses.
Since Alex and Chris are paying $2,700 a month in rent, they would each contribute the following to their joint account to cover their rent costs:
Alex: $2,700 x 60 per cent = $1,620, or 37 per cent of net income.
Chris: $2,700 x 40 per cent = $1,080, or 38 per cent of net income.
See how nicely that works out?
This, of course, only applies to the bills you agree to split. If you’ve run up a whole bunch of debt that your mate doesn’t want to have anything to do with, then you’re on your own. The same goes for individual expenses. If Alex chooses to drive a fancy car that costs $600 a month and Chris chooses a car that costs $200 a month, they would each pay their own car costs.
It is important that partners also talk about what they’ll do if there’s a change in
circumstances that affects the budget.
One of you may be out of work temporarily. How will you even up after? And if you decide to have a family and one of you stays home, even in the short term, how will you manage the bills and ensure the non-working partner has some money of their own?
These discussions may feel hard; people find it difficult to talk about money. But not talking will leave you both in the dark, a place where resentment thrives.
So communicate, don’t disintegrate.
For more money advice, visit Gail’s website at gailvazoxlade.com