Welcome to the Percentage-Based Bill Payment System
One of the most unhelpful things I learnt as a child from my parents was that ‘Talking about money is rude so never do it’. Such was the stunningly unhelpful impact this attitude had upon me I even wrote about it in a blog titled Would you prefer to talk to your kids about sex or money?
The problem when we don’t normalise talking about money matters with our close friends and partner, is we never develop the skills we all need to have a Happy Financial Life.
Now I’m the first to acknowledge, everything we know we’ve had to learn from somewhere, so there’s no shame in not yet having this conversation skill nailed down. But the sooner we improve our ability to talk about money matters, the sooner we can learn (and teach our children) how to navigate through financial life better.
So how do people in new relationships pay shared bills together?
When you're starting out in a new relationship, the experts all agree, hasten slowly.
- Don’t put all your money in the one account, and
- Don't pool all your debts in the same way also
Get to know each other’s money personality first. Then begin to regularly talk about and normalise your money matters discussions. Ultimately, the more you combine your financial lives, the more you'll need to set expectations and clear responsibilities, and find a way that works for your personal situation.
Equal commitment - not equal sacrifice
When it comes to paying joint bills, while many people just split everything 50/50, many couples believe splitting joint expenses proportionately is usually fairer.
If you’re both earning substantially the same level of income
- For couples who are both employees and earning substantially the same amount of money, splitting bills 50/50 seems quite logical and straightforward.
If you’re both earning substantially different levels of income
- But what happens if you earn $105,000 pa and your partner is studying part time and working part time earning an income of $37,500?
- How do you split the grocery bill fairly as each person is already paying a different tax rate?
|Before tax income pa||Tax rate||Tax paid||After tax income pa||After tax income per mth|
Try the government's Simple Tax Calculator here
Splitting bills based on your income levels
Let’s consider the example of Chris and Ashley above.
- Chris makes $105,000 a year
- Ashley makes $37,500 a year
Splitting the bills 50/50 would mean Ashley ends up spending disproportionately more income on joint expenses, leaving little or nothing for individual goals such as savings or future travel.
How to split bills based on your income levels
Learning to split bills proportionality is fairer because it leaves money in each partners pocket for personal saving, paying individual expenses and having a life.
When working out the income levels you're working with, always use after tax (take home income) amounts.
3 Simple steps
- First, work out your annual after-tax income and divide by 12 to get a monthly figure
- Next add your individual after-tax incomes (net income) together to calculate a joint income.
- Now divide each individual’s income by this joint income figure and multiply by 100 to get a percentage.
A typical calculation looks like this
- Net income + net income = Joint income
- Divide 1st net income by the joint income to get a percentage
- Divide 2nd net income by the joint income to get a percentage
How to find your percentage
Chris and Ashley share a unit together and split their major shared bills using the percentage based system.
- Chris’s after-tax income per month is $6,643
- Ashley’s after-tax income per month is $2,827
- When added together these equal $9,470
Dividing Chris’s after-tax income of $6,643 by the joint income total of $9,470 = 0.701.
This is close enough to 70% so Chris pays 70% of the shared bills.
Using your percentage when paying shared bills
Their combined monthly rent and groceries bill equals $2,890. Splitting this bill for payment based on their income levels looks like this:
- Chris $2,890 x 70% = $2,023
- Ashley $2,890 x 30% = $867
Now they each know what their own percentage of the shared bill is for them to pay.
A quick reminder to have a backup plan
When we share our lives with another, it’s not long before we all get to depend on each other.
The statistical reality of life is we all have a 1 in 10 chance of being sick or injured and off work for at least 3 months during our working life. For many of us, that reality has already hit home and for others, it’s more an ongoing concern you manage with income protection insurance.
There are many ways for today’s modern couples to merge their financial lives while still allowing each other to enjoy a healthy independence and personal responsibility to save for their own future plans too.
Why not learn the skill of paying shared bills by percentage of income?