When living together but not married, you might want to think twice before merging finances. You don’t have the same protections as you would if you were married. Until you marry, you should keep all your expenses separate to protect yourself in the event of a separation. You don’t get the same legal protection if you are not married, so you need to provide protection for yourself.
Determine the Shared Expenses
First, you need to determine the expenses you will share as part of the home. Generally, you will need to split rent, utilities, and basic groceries. If you have pets, you may include pet care in the household budget.
Determine Your Contribution Amount
Some people might say that you should both contribute 50% of the household expenses to the budget, since you are living together and splitting costs, but this is not necessarily the best idea.
Often, one person earns more than the other, and for that person, paying 50% of the expenses can be burdensome for the person earning less. It is better to contribute a percentage based on your income. This way, each of you can contribute to retirement and cover your other expenses without being hindered by fixed monthly contribution amounts.
Determine Your Contribution Amount
To determine the amount you both should contribute, you should add together your total incomes and your total household budget. Then divide the total income by the household budget.
Paying bills like rent, utilities, and grocery bills based on the percentage of what you and your partner earn, rather than a fixed 50%, is the most reasonable way to create a fair shared living budget.
Open a Separate Checking Account
You should open a separate checking account exclusively for your household expenses. Both partners should be signatories on the account, and you should have a set date on which you deposit an agreed amount into that account to cover the monthly bills.
Then you will pay for the expenses included in the household budget from that account. This will protect your other money if your partner makes poor financial decisions, and it will make it easier to divide things up if you separate in the future.
Covering all household expenses with this account will prevent you from using a credit card or dipping into savings to cover joint expenses. It would be best for this account to be at a different bank than your primary account.
The Items You Are Responsible For
You should be responsible for paying for your own car costs, car insurance, and other expenses. You should buy your own clothing and cover the costs of your haircuts and personal care items. If you purchase meals out by yourself or with friends without your partner, you should pay for that with your own money.
You should also contribute 15% of your total income to retirement. You are entirely responsible for any loans or credit cards you have. You will need to cover your medical bills and your insurance.
You should also have your own emergency fund of at least six months’ worth of expenses, including what you will contribute to the household account. You should analyze your budget to ensure it’s aligned with the appropriate spending and saving ratios.
Budgeting the Rest of Your Income
You should have a budget of your own to control casual spending and help you get out of debt. This budget will help you stay on track with your retirement contributions and avoid falling into a bad financial situation.
Follow the ordinary budgeting rules when setting up this budget, but it should only cover items in this budget from your personal checking account. Make sure not to forget common budget categories. You may also want to allocate a category for unexpected or irregular expenses like attending a friend’s wedding.
If
You worked on a commission-only basis, so it’s important to have a commission budget plan to help you manage these monthly expenses. You can achieve this by holding weekly budget meetings.
Keeping Expenses Separate
It’s important for both of you to keep external expenses separate from household accounts. You should not make large purchases together until you are legally married.
Buying a home or car together can make separation more difficult. If you want to save for a down payment when you get married, you can save separately and report your progress.
Once you are married, you should rework your budget together to include all of your expenses. If you have children together but are not married, you should include all childcare costs in the household budget, including formula, food, clothing, medical care, and daycare costs. This will make things easier if you separate due to a job transfer for one partner. It will also allow you to focus on the weaknesses of your own budget rather than looking at how your partner spends money.
Frequently Asked Questions (Code)
What happens if we are jointly responsible for a debt, but one of us can’t or doesn’t want to repay it?
The creditor can legally pursue either or both of you for the full amount owed. Late payments will be reported on your credit records. If your partner doesn’t want to pay, you will have to cover the amounts in full to maintain your credit rating.
How much of our income should go to housing costs?
The accepted rule is that you should spend no more than 30% of your income on housing costs. This percentage will apply to your joint income if you are married, but you should calculate 30% of your individual income and 30% of your partner’s income and add them together, then try to keep the rent amount close to that number.
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Sources
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts in our articles. Read our editorial process to learn more about how we verify facts and keep our content accurate, reliable, and trustworthy.
US News. “What to Do When Your Spouse Is Sabotaging Your Finances.”
Huff Post. “Read This Before You Buy A House With Someone You’re Not Married To.”
Credit Counseling Society. “Joint Debt Problems.”
Habitat for Humanity. “What Is Housing Affordability?”
Source: https://www.thebalancemoney.com/set-up-a-household-budget-2385714
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