My dude and moved in together a few months ago. The number ONE thing that we were both excited about was getting to live with our favorite person. The number TWO thing that we were both excited about was getting to cut our living expenses IN HALF and then roll around naked on a bed of all the cash money we were going to save.
We’re very frugal people and we like seeing the numbers in our bank accounts go up.
We decided to use a super efficient, super simple system for splitting and paying all of the household expenses that we share. I knew that splitting expenses this way would work well because I’d actually done it before – It’s the same way my Mom and I handled splitting expenses when I was still living with her just after college. With some added automation, because I like to let the robots do the work for me.
I’m sharing this system with you today because if you’re living with someone else, whether it’s your boyfriend, girlfriend, spouse, parent, roommate or whatever, we all know money is a big source of stress in relationships. Finding an equitable and no-nonsense way of divvying up expenses and paying for them is super important.
For simplicity’s sake, I’m referring to the person you split bills with throughout this post as your “Partner”, but I mean your bill-paying partner even if they’re not your sexytimes partner.
Before we jump in: Grab my spreadsheet
This is my actual spreadsheet that I wrote to help me and my Dude split our expenses. This tells us how much we each need to contribute to “joint” bills, and how much we need to pay to our individual bills. If you’re not interested in calculating your or your partner’s individual expenses as well, just ignore those columns and rows.
Ready? Let’s go.
Figure out which expenses are joint responsibilities
You’ll need to decide what constitutes a “joint” bill. If you’re splitting with a roommate, this should be pretty straightforward – You split rent and utilities.
If you’re splitting with a significant other and you guys share things like cell phone plans or car insurance, that makes those items a joint bill too. Some things are “household” things that only one person might pay for. For example, I have a Netflix account and sometimes we watch it together, but we only have the account because I want it. So I pay for it. It’s not a joint bill.
Once you’ve figured out which expenses are joint expenses and which are personal, plug those things into the spreadsheet. If a bill isn’t always the same (like water or electric might vary month to month) enter the highest bill you’re likely to have.
Calculate each person’s half (or whatever percentage you’re each responsible for)
Do you and Partner make roughly the same amount of money? (We do.) That makes things easy because you can just split everything in half.
If one person makes significantly less than the other, you’ll need to decide if you’re going to go halves anyway or each pay in a percentage of your income. If you want to pay percentages, you’ll need to total both of your monthly or yearly incomes together and then figure out what percent of that you’re each bringing home. Then you can each pay in that same percent of the expenses. There’s a note in the spreadsheet about how to calculate that percentage.
Figure out if you want to pay in your share monthly or with each paycheck.
If you’re getting a regular paycheck from your job, are you paid biweekly? Twice monthly? Monthly? Would you rather pay a smaller portion of each check to your joint expenses or a larger sum once a month?
If you’re self employed, which way works better for you based on how often clients are paying you?
My Dude and I both get paid every other week. It’s easier for us to pay a smaller amount out of each paycheck than to pay a larger sum once a month. So after our monthly expenses are split in half (my half/his half) we each pay half of OUR half (so ¼ the monthly total) every other week when we get paid.
Follow me? Total bills per month ÷ 2 = my half. My half ÷ 2 = my biweekly payment towards joint bills.
You’re probably doing the math right now and thinking, “But that’s 26 paychecks a year. If you split each month into two payments, you should only be paying 24. You’re both paying too much.”
Yep! Glad you noticed that. That’s completely intentional.
Here’s why: If there’s a mistake on your bill, or something comes in unexpectedly high one month, you don’t want to risk an overdraft fee from your bank + some kind of late payment/insufficient funds fee from your utility company. Throwing away $50 or more on bullshit fees for a silly miscalculation is pretty much my worst nightmare.
Paying a little extra isn’t nearly as noticeable when you’re paying every other week instead of once a month, and it makes sure that there’s a little extra “cushion” money in our “Joint” pool. I’d rather pay in a little extra and have that safety than pay too little and risk an overdraft. This works great for us, but you’ll need to decide if it works for you.
Set up a “Household Bills” account to put all of this money in
Here’s the part that might be a little tricky. I really, REALLY recommend that you have some sort of joint account that you pay bills from that is not either of your personal accounts.
Keep your money for joint expenses separate from your personal money. That makes sure that there’s a really clear line between what’s each of yours to spend and what is shared. When each of you pay in, you pay into that joint account and all of the expenses are drafted from there.
We each have bank accounts at the same credit union. They have a really awesome online banking system and you can literally set up as many checking accounts as you want right from their website (you don’t even have to talk to anyone!) and you can give them unique names to keep them all straight. They also let you designate a “joint” owner for any of those checking accounts. One of us set up a new checking account, named it “Household Bills” and then designated the other as a joint owner. We each put our portion of the bill money into that account, and we both can see what’s going on in there whenever we want.
Obviously that is, like, the ideal scenario. But if neither of you belongs to a bank that is this flexible, you can still pull this off.
Look for a bank that offers FREE checking AND will let you designate a joint owner, or at least an authorized user who can make deposits into the account. Lots of banks offer both of these things, but info about joint accounts might not be readily available on every bank’s website. If not, just call or walk into a local branch, explain what you’re trying to do and ask if they can accommodate you.
Set up direct deposit or pick a date that you’ll both pay in
So you know what you’re both paying for, how much you’re paying, how often you’re going to pay it and where you’re going to keep it.
Now you just need to start flowing some money into that account.
If you work somewhere that you have direct deposit, this is probably easy. Just change your direct deposit to send your joint bills payment into that shared account and put the balance in your personal checking.
If you can’t do that, try to automate the flow of the money from your personal account into your joint bills account so that you don’t have to think about it. If your bank will let you set up an automatic recurring transfer, set it to transfer the correct amount into that joint account every two weeks on the Monday after pay day, monthly on the first of the month, or on whatever schedule you decided on.
Move Household Bills to autopay (but maybe not all at once)
This is the part where we put everything on autopay, hit GO and let it run itself. Start setting those monthly payments for your household expenses to come automatically out of your new joint account.
I’m a huge (HUGE!) proponent of autopay. I know it makes some people nervous to not be in constant control of their money, and I totally get that. However, as long as your math is solid and you’ve calculated everything correctly, and you’ve taken my advice by estimating high wherever possible, autopay will take the tedium out of paying those monthly bills and eliminate any possible human error.
I’ve been doing this with all of my bills for over four years. I’ve never been charged incorrectly and I’ve never paid a late fee.
Before you switch on the robots there needs to be some money in there, so this should happen after you’ve each put some in. The ideal time to start this is right AFTER the rent or mortgage has been paid, since that’s usually your largest bill. You don’t want to get socked by an automatic payment for more than you have in the account. So start with the smallest bills first and let that BIG monthly rent or mortgage payment be the last thing that comes out after you’ve both had the chance to pay in your full month’s worth of bill money. Just say no to surprise overdrafts!
What to do with all that extra money?
So the Monthly Total number from the spreadsheet? That’s the most money that ever really needs to be in that account at any given time. That amount gets everything paid.
Assuming you followed my advice and estimated those variable bills on the high side, after about two months you should start to notice that the balance in this joint account occasionally creeps up higher than your monthly bills – as in, there more in there than ever needs to be in there.
What an excellent problem to have! What are you going to do with it?
I say let it sit there. Like I mentioned earlier, it’s nice to have a cushion if a bill goes crazy one month. Maybe you left the garden hose running in the back yard for a week and quadrupled your water bill. (True story. I totally did that.) Oops! Or if something breaks, like suddenly you need a new refrigerator for your shared living space, you can tap that money.
If your bill-paying partner is not your significant other, you might not like leaving extra money in limbo like that, so handle it however you want. Maybe once or twice a year you withdraw the extra and split it, or you use it to throw an awesome New Years party. You do you.
Setting up an automated system for sharing and paying joint bills will take a little bit of upfront work, but once it’s running you will virtually never have to think about it. Set it and forget it, my friends.
It will be consistently fair and efficient. And that’s important because money fights are the absolute worst and you have better things to spend your valuable time and brainpower thinking about.