How to split finances when living together

Money and relationships are two topics that don't always mix well, especially when you first move in with someone you've never lived with before. The good news is that pooling your money together may mean you can afford to live in a more desirable location with more amenities. The bad news is that splitting up the costs can be a sensitive topic.

When you move in with someone, determine early on how to deal with shared costs. Whether you're romantic partners, roommates or family members — you'll want to divvy up the expenses in an equitable way.

Below are some tips on how to set yourself up for success when discussing this important topic. Here's what you'll learn:

• Ways for couples to split bills
• The do's and don'ts of splitting bills
• How couples split expenses once they're married
• Rent is the biggest expense; how to split it up
• Other household expenses to divide

Ways for couples to split bills

There are several methods couples or roommates can use when splitting living expenses, depending on their financial circumstances and personal preferences. Consider which of these approaches makes the most sense.

Keep separate accounts, but make equal payments

Many people find it easiest to maintain separate financial accounts with their own funds. From there, they contribute equally to shared expenses.

You pay this, I'll pay that: The free-for-all approach

Some people make each partner or roommate responsible for different shared expenses. For example, Person A might cover rent, while Person B might pay for groceries and utilities.

This approach can work but is tricky because one person often gets the short end of the stick. Returning to the previous example, rent is a considerable expense. Person B may cover various other expenses, but they might not add up to the rent total, leaving Person A to pay more.

Keep in mind that variable expenses such as groceries and utilities are likely to fluctuate from month-to-month, unlike rent. If this is the method you choose, be sure to track the expenses paid by the person who is in charge of the variable expenses on a monthly basis. At the end of the month (or even year), you can square up with the partner who paid rent and see if one person owes the other.

Split bills by income

Few people ever make the exact same amount as the person they are living with. Consequently, many opt to split bills proportionally according to each person's income.

For example, if Person A makes $6,000 per month, and Person B makes $4,000 per month, their total income is $10,000. Person A earns 60% of that, while Person B brings in 40%.

Now, imagine their total shared expenses are $4,000. Person A would cover 60% of that—which is $2,400—while Person B would pay the remaining $1,600.

Financial tips for couples moving in together

Are you moving in with your significant other soon? Consider following these do's and don'ts of splitting the bills with your partner.

Do's of splitting bills

• Do plan for the worst-case scenario: Have a plan in case you face steep challenges. What if one of you gets sick and can't work? Or what if you break up and you still have many months left on the lease? This means that you may have to move out or take on some debt if expenses become unsustainable. What is your plan if this happens? 
• Do consider creating a joint account for shared expenses: Maintain separate accounts for personal spending and open a joint account for easier shared spending. You can use a joint credit card, ideally one that earns rewards, as well as a joint bank account to pay your shared expenses.

Don'ts of splitting bills

• Don't pay the bills until all roommates contribute: Wait and pay your shared bills when all roommates have provided their portion. If not, it may lead to a situation where one person takes advantage of the others by continually paying late or not at all. If the issue is not forced from the beginning, you may be left to collect everyone's payments, which is never fun. Also consider keeping a record of all payment confirmations or receipts. If a late fee occurs, the roomate(s) who did not contribute on time is/are responsible for covering that fee. Note that this doesn't just apply to moving in with your partner, this may apply to moving in with anyone.

How do couples split expenses when they're married?

When you first move in together, you might be hesitant to combine finances beyond shared expenses like rent and utilities. However, after you get married or are in a committed relationship, you may rely more heavily on joint accounts. In joint accounts, typically both incomes are deposited into one shared bank account and bills are paid from there. If you start a family, you will also have to figure out how you will split childcare expenses and long-term goals like college tuition funds. 

That said, some couples still choose to maintain separate personal bank accounts and divide bills up in whatever way they'd like.

In certain cases, couples may opt for a prenuptial agreement, colloquially known as a prenup. This legal contract can protect assets that you bring to the marriage should you ever divorce.

Rent is the biggest expense; how to split it up

Rent is usually the most substantial bill among roommates. Fortunately, you can split it in several ways.

Many households split the rent evenly out of simplicity. However, this may not be the fairest outcome if rooms are different sizes, or there aren't enough parking spaces for every roommate. Thus, some households calculate rent by the private spaces (usually the bedroom or other amenities) that each person is using.

To do this fairly, calculate each person's bedroom's square footage, and add them together. Divide each person's room's square footage by the total, and multiply each result by 100 to get a percent. Multiply each percentage by the total rent to find each person's share.

No matter which method you choose, it's wise to create a written document to sign with your roommates that outlines these terms, otherwise known as a roommate agreement.

Additionally, you may want to elect one person who exclusively deals with the landlord. That person is in charge of communicating any relevant information or payments between the tenants and the landlord.

Other household expenses to divide

Beyond the big things such as rent and groceries, there are many other shared household expenses to consider before moving in with someone. Things like:

• Security deposit
• Electric and gas
• Internet
• Cable or streaming services
• Repairs
• Cleaning services
• Trash removal
• Parking and transportation
• Renter's insurance

Decide how you will divide these bills with your roommates ahead of time so there are no surprises when it comes time to pay.

In conclusion

Moving in with someone is a big step and requires some uncomfortable but critical conversations. Planning ahead and communicating openly may help alleviate the potential pitfalls that come with mixing money and relationships.

Before taking the leap, carefully consider and document the methods in which you choose to split the bills. This will ensure that everyone is aware of their fair share, and no one is unclear about their responsibility.