While being young, broke and beautiful is all well and good, some people’s finances are more jacked than others. That’s why we’ve invited Betsy Crouch (aka Coach $izzle) to come onboard and dole out some much needed advice. She is a professional financial coach after all. If you’ve got a question you’d like answered please email her at. Maybe your question will be the next one answered.
“How do you handle finances in a relationship between two people with totally different incomes?” -Chirabo
Last week I wrote about how for many people, not all people, money and “relationships” don’t mix. Many people do not want to have a difficult conversation with a friend, neighbor, or relative about anything let alone money. The first steps are to communicate and don’t make assumptions!
Let’s start with the fact that we need food and shelter to survive. Unless you are bartering, you need money for these things. Lacking confidence with finances could lead to a lack of stability in these core areas of survival. Captain obvious is back! Stay with me.
If you lack confidence with finances, then what are you likely to do? Ignore finances, look for ways to build your confidence, or let someone else handle it.
Ignore finances - This is really common. If you don’t want to “deal with” money then you may face some costly ramifications. Symptoms of ignoring finances include, avoiding difficult conversations, damaged credit, late fees, overdraft charges and more. I am not saying that in all cases these things are signs of ignoring finances. Also, people who ignore their finances experience a range of financial status, some have a ton of money, some have a little and some are in a ton of debt.
Look for ways to build your confidence – Make friends with Money, read this article on building your relationship with finances.
Let someone else handle your finances entirely - I am not a big supporter of totally “handing off” financial decisions and responsibilities. Now, in a relationship it is great to have a partner to work with on life, and trust is the cornerstone of a healthy relationship, no joke. I think it is important to have clear communication and for partners to make major decisions together. It is common that one partner would be more confident financially than the other. Let’s just say that I don’t think that it “boosts” one’s financial confidence to hand off “dealing” with the money.
Here are some common challenges couples have with splitting expenses:
100%/0% Expense split (rare, and I know some of you are thinking.. uh this would not be a problem if I were the 0%):
If one partner controls the finances and let’s say pays the entire rent. The other person may feel bad not feel like they are contributing. The person paying the rent may feel resentful that their partner doesn’t contribute.
50%/50% Expense split:
If they split evenly then the person who makes significantly less may struggle to keep up with their savings goals and expenses. Maybe the person who makes more does not want to live in a less expensive place and they are willing to pay more but the person who makes less wants to split the rent evenly and couldn’t afford a more expensive place.
The ideal solution:
The ideal solution is that both partners make exactly the same amount and split expenses 50/50. Ok just kidding. I truly believe that the ideal solution is for two partners to come up with something they feel good about. When something comes up, both partners feel comfortable talking about the issue, they listen well to each other and adjust the agreement accordingly.
The creative / progressive solution:
This is my favorite of all. Each partner pays the same percentage of their income towards shared expenses.
- Let’s say that partner #1 makes $70,000, and partner #2 makes $35,000 per year, and they both work full time.
- Their monthly shared expenses: rent, utilities, food, etc., totals $2200.
- If both paid $1100 of the expenses then parter #1 would be spending a little less than 19% of their total income on shared expenses.
- Partner #2 would be spending almost 38% of their income on their shared expenses.
They are both working full time and some would argue that splitting 50/50 is fair, but do you still think so?
What if they decided to both put 25% of their total income towards shared expenses?
For partner #1, that would be $1458 per month for the year, and for partner #2 $729 per month.
Each one would know that one out of every four hours of work goes towards their shared expenses…. Does that seem fair?
Email firstname.lastname@example.org with thoughts/questions and comment below!