If relationships are about sharing, isn’t combining your finances the inevitable, last step in a mature relationship? Not at all. According to a recent survey, half of us maintain separate bank accounts from our partners. If you’re always fighting over shared expenses, splitting finances might be worth it for you.
The downside to shared finances
Isn’t pooling your funds the inevitable, last step in a mature relationship if partnerships are about sharing? Not in the least. According to a recent poll, half of us keep bank accounts separate from our partners. Splitting funds can be worth it for you, if you and your partner are finding yourselves bickering about joint spending.
Pooling your income and expenses can have its downsides, which may include:
- Lack of financial independence: A combined checking or credit card account can be just as difficult to manage as two separate accounts, especially if you don’t agree on everything, especially when it comes to discretionary spending. Even if you agree on a defined monthly spending budget for each person, it’s easier to break the rules when the money comes from a single source. Separate accounts are preferred by some couples because they allow them to set a strict limit on individual spending (assuming each party covers any shared expenses first).
- Unwanted scrutiny over purchases: You might think you’re ok with partner’s spending habits, but over the years, their ill-considered impulse purchases off Instagram might get on your nerves.
- Different spending goals: One spouse in a couple may wish to pay off debt faster than the other, which can lead to disagreements over what is considered wasteful spending. Splitting your expenses could be beneficial if you and your partner are at differences over spending priorities and feel like you need a mediator.
- A back-up plan: Peeling apart smooshed-together money can be highly distressing if your relationship goes south and you find yourself going through a breakup. For some people, having financial independence in the case of a messy divorce provides critical peace of mind.
If you’re married, your money may be already legally integrated, which means your spouse’s income is practically yours as well. Keeping separate accounts, however, is still worthwhile if it means fewer budgetary arguments and maintaining a sense of independence in your own spending each month.
Common ways to split your finances
Couples frequently hold a joint checking account for shared expenses such as rent or utilities while maintaining separate bank accounts for personal spending. Each individual can set up auto-payments from their personal accounts to the shared account, which will cover their half of the costs.
Food expenses, for example, can be totalled at the end of the month and paid off via deposits to the joint account, or both persons can agree to pay an approximate amount to their shared account and make up for any overages later.
There are a few methods you can use to determine how much each person should pay based on their various income levels.
- Sharing equally: When both people earn nearly the same amount of money, a split of all expenses down the middle is simple to calculate and perfect. Of course, if one half of the pair is a stay-at-home parent, or if one person is in school while the other is working full-time, this strategy can be far less equitable.
- Proportional sharing: Couples with income gaps frequently divide expenses as a percentage of income, so that if one earner produces 70% of the household income, they bear 70% of the expenses (for example, if rent is $2,700, they would pay $2,000).
- Proportional by usage: This version accounts for how expenses are used, so high-earners aren’t penalised by their partner’s sloppy spending. You might preserve proportional sharing for fixed expenses such as rent, with smaller bills such as Netflix or data plans being paid by the individual who uses them the most. This can also apply to discretionary spending if it exceeds a pre-determined limit. This type of financial split necessitates more negotiating and diligent tracking, but it can also be more equitable for all parties.
Disclaimer: This article is not intended as legal, financial or investment advice and should not be construed or relied on as such. Before making any commitment of a legal or financial nature you should seek advice from a qualified and registered Australian legal practitioner or financial or investment advisor.