How to Split Finances in a Relationship: The 50/50 Method or The Income Percentage Split Method

Unfortunately, the second leading cause of divorce after infidelity is dispute over finances. One way some couples have decided to try and avoid this is by separating their personal finances. There are a few ways to go about this process, but since most “serious” couples tend to end up living together, they will inevitably end up with some shared expenses they’ll have to find a way to split. The two most common types of splits are 50/50 and Income Percentage Splits. We’ll go through the differences between them and the process for both.

What’s the Difference between 50/50 and Income Percentage Split Methods?

The biggest difference between the 50/50 and the Income Percentage splits are how you divide up responsibility for each partner. In a 50/50 Split you just divide everything right down the middle. So, each partner contributes to half of the shared expenses. It’s called the 50/50 because each person contributes 50% of the Shared Expenses. This makes it the easiest way to split shared expenses, but some couples see this method as a problem because it doesn’t account for couples where one partner makes significantly more than the other.

To fix the issue mentioned above, we have the Income Percentage Split which is a split relative to the income of each partner. Instead of just paying half of the shared expenses, each partner pays a percentage of shared expenses relative to their income. Kind of like how Income Taxes work (which you can learn more about at the link). The purpose is to find the “fairest” way to split expenses.

The Steps to Split

So no matter which route you choose here, there are some overlapping steps. With either method for splitting, the first, second, and last step are the same. So, we’ll start by explaining the repetitive steps, then break it down into the different steps for each of our different methods, then back to the combined final step. So, let’s get started!

1) Agree On, Add Up, and Agree Again on Shared Expenses

First thing you’ll have to do as a couple is agree on the shared expenses, which can often be the hardest step. That’s because it requires honest and open communication with one of the hardest subjects for couples to discuss; finances. Typically, one person in a relationship is more concerned or involved with their finances than the other, so that can lead to a difficult discussion that your partner may not want to have. I know speaking with my wife, she’ll often ask me not to tell her how much we spent on Amazon purchases from month to month because she doesn’t like to think about it. So if you think your combined expenses should be just housing and utilities while your partner may also want to include food or a joint emergency fund, that discussion can be a challenging to work through. Because of this, I would recommend for this step setting a “Money Date”. Essentially, plan a “date” ahead of time where at least part of the date is talking about your finances. You can do it over dinner or in your living room with a whiteboard. Whatever works for you, but you’ll want to set the date clearly stating the purpose and with enough time for your partner to prepare. You don’t want to surprise your partner with a shotgun date about finances at the last minute. That won’t go well.

Second part of this step is adding up the shared expenses. This is the easy part. Once you’ve decided, you’ll just need to know the total expected cost for the expenses you plan to share each month. This will be easy for those set expenses, like rent or a mortgage, but some shared expenses may fluctuate from month to month. For those, you’ll want to take an average of the amounts billed previously and then round up. For example, if you split the water bill and it’s been $50 one month, $55 the next, and $40 this month, the average would be ($50 + $55 + $40)/3 = $48.33. You can then round that up to just $50 so you know you should have a enough. This is just one suggestion for fluctuating expenses. Just once you’ve determined your total for shared expenses, you’ll want to agree to that total. The idea of certain expenses may be more agreeable than the total amount so you should confirm your partner is cool with that total amount. To try and keep it easy; agree to the shared expenses, add them up, and agree to that again.

2) Open a Joint Checking Account

Now that you have a total amount to split, you’ll want to open a Joint Checking Account. If you already have one, great! Feel free to move on! If not or you just want to understand more, let me explain why. The reason for opening a joint checking is it allows you to each contribute your fund independently. It doesn’t require one partner to be “the Banker” and make sure you pay them to pay bills, etc. You can simply just all contribute your portion to the account and then pay bills from that account. It also allows you to keep a reserve for future bills. So let’s say one of your fluctuating bills comes in lower than you both expected. That extra money you put into the account can sit and be saved for more expensive months. Lastly, a joint checking is easy to set up and easy for both partners to review. Pretty much anyone can open a joint checking account with someone. You don’t have to be married or anything to have a combined checking account. Also, both partners can see what goes in and goes out. That helps with trust because either partner can see when something changes that’s abnormal.

So, I have also heard of other couples using a joint credit card to pay shared expenses. This can work too, but I want to address it because it has more risks. The biggest risk being, if one partner stops paying their portion, you could end up carrying a balance and owing more in interest. With a checking account, if your funds are too low to make a bill payment, you’ll get an alert. With credit cards on the other hand, you won’t get any alert and the card will just pay the bill without you being able to afford it. This is a worst case scenario, of course, but worth paying attention too.

The 50/50 Method

Now we’ll split into the different steps for the different methods, starting with the 50/50 Method.

3) Divide Expenses in Half

This is method has the easy math. You simply divide Total Shared Expenses by 2. This will give you how much each person should contribute each month

Total Shared Expenses / 2 = Individual Contribution

So if you’re shared monthly expenses were $2,000, each person owe $2,000/2 = $1,000. Simple enough, right?

$2,000 / 2 = $1,000

The Income Percentage Split Method

Time for the Income Percentage Split Method which is a bit more complicated so buckle in and get your calculators.

3) Add Up Both Incomes

If you and your partner haven’t discussed how much money you each make, there is no time like the present. To determine this split, you’ll need to first figure out how much you both make each month in total. Add up both your expected compensation for a monthly basis. Depending on how you earn, this may be as easy as adding up pay stubs. However, if you are paid hourly or work mostly off commission, you’ll have to make an educated guess here. Just like with adding up expenses, for fluctuating income, take an average and round up. Personally, I think it’s better to over contribute to saving for essentials than risking being short, so round up.

4) Divide Each Person’s Income by Total Income

Here’s where it gets interesting. You’ll now divide your individual income by your combined income to get your income percentage. You’ll then do the same for your partner.

Individual Income / Total Combined Income = Income Percentage

This is where you find out exactly how much more or less you make than your partner. So, let’s say you make $2,000 a month and your partner makes $3,000. Your Total Combined Income would be $5,000, so you Income percentage would be 40%.

$2,000 / $5,000 = 0.4 x 100% = 40%

Do the same thing for your partner and you’ll get 60%.

$3,000 / $5,000 = 0.6 x 100% = 60%

5) Multiply Shared Expenses by Income Percentage

Now, you’ll multiply these percentages to your shared expenses to determine each person’s contribution.

Total Shared Expenses x Income Percentage = Individual Contribution

So, if we stay with the examples we’ve used so far your Total Shared Expenses are $2,000 and you owe 40%, so you’ll owe $800 a month.

$2,000 x 40% = $2,000 x 0.4 = $800

That means your partner will owe 60% of $2,000 or $1,200 each month. You could also just subtract your contribution from the total.

$2,000 x 60% = $2,000 x 0.6 = $1,200

Now you know how much you would each need to contribute to pay both of your expenses relative to your income.

The Final Step: Contribute to Joint Checking and Pay the Bills

Now that all the math is done and the decisions have been made on what is being shared, all you each have to do is contribute your portion to the Joint Checking Account and use that Account to Pay Shared Bills. Easy enough, but there are some odd occurrences worth considering. If you come up short for a fluctuating bill, you may have to contribute more. This can be annoying to try to split on an off occasion, so having a plan for this possibility is worth discussing. The same goes for deciding on what to do with a surplus. Let’s say you both contribute expecting a $50 water bill, but it’s consistently $40 or less, what do you do with those extra funds? That’s up to you and your partner to decide, but having a plan ahead of time, before these issues arise can make it easier.

The other issue that can happen with splitting expenses is what do you do if you or your partner loses your job? This is a scary reality of something that can happen. How do you move forward splitting expenses and saving. This is a very hard question and something you and your partner will have to work out. In the future, we’ll have posts about some strategies for issues like this, but more importantly is discussing with your partner what you may plan to do. You can’t prepare for every possibility the future holds but, communicating early and often with your partner about finances is often the best route.

The Wrap-Up

As beneficial as these two methods for splitting expenses can be, they may not work for you. The partner making less may think the 50/50 Method takes too much of their income while the person making more may feel like they shouldn’t be penalized just because they make more. Those are both fair concerns and these method may not allow you to find a happy median. Just like I know some people may be reading this and feel offended that I would even suggest a married couple try and split shared expenses. They may prefer that couples combine all their money and that can work too. My wife and I currently share all our income, but we also have individual accounts that we can use for making purchases for ourselves. This helps us maintain our freedom while working towards a combined goal. What works for one person may not work for another, but understanding the options can make it easier to figure out what works best for you and your partner. No matter what, the best way to find success is to keep learning. That’s because Financial Literacy is the Number 1 Key to Financial Success!

*Disclosure* This is NOT financial advice and I am NOT a Certified Financial Planner. All information is provided for educational purposes only and is not to be construed as advice. Everyone’s financial situation is different and requires individualized planning. Seek out a Certified Financial Planner for assistance with your own financial situation.