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Fairness in household finances

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If there’s one topic in a relationship that’s sure to cause awkward moments it’s money. Throughout my life I’ve been surprised over and over again by the assumptions about fairness and equity that we each carry when it comes to our finances.

My wife and I have settled on a system that works well for us and so far has eliminated any feelings of inequity. I’ll lay out our current system after I explain its evolution.

When we first started co-habitating (after buying a house) we paid our shared expenses by roughly splitting up the bills. This meant that one of us paid the mortgage and the other paid for everything else. After a few months (and a few arguments) we figured out this system wasn’t working. My salary is about 25% higher than my wife’s so it didn’t seem fair (to me anyway) that we pay the same amount.

For the next iteration of our money plan we sat down and come up with a budget. The budget breaks down to basically this: Mortgage + Utilities + Car + Groceries + Savings + Miscellaneous. The Misc category is usually small project costs related to the house or infrequent bulk meat purchases. In order to keep us honest with our budget we needed to separate our personal spending from that of the house and so we created a new checking account that we could each transfer money to within our credit union.

So now we know how much money needs to go in every month but how do we know what to contribute? The simplest approach is to calculate what percentage of our combined income we each make and then apply that to the budget amount. Seems like a pretty fair arrangement:

Salary A = $2000 (47%)

Salary B = $2300 (53%)

Budget = $3000

A contribution = $1410 ($590 leftover)

B contribution = $1590 ($710 leftover)

$120 difference

We used this arrangement for about two years but as my salary diverged more from my wife’s an interesting problem arose. Namely, there was a growing disparity in how much we each got to personally spend each month. This detail is important because we don’t spend our joint money on eating out and entertainment. Instead, we take turns treating each other to dinner, coffee, movies, etc. As the disparity in our spending money grew, my wife was feeling the pinch even though she technically had more money at the beginning of the month.

Salary A = $2000 (45%)

Salary B = $2500 (55%)

Budget = $3000

A contribution = $1350 ($650 leftover)

B contribution = $1650 ($850 leftover)

$200 difference

Our current method balances our spending money between us and feels like the most fair system yet. The formula looks like this

(Salary B – Salary A + Budget) / (2 * Budget)

Assuming that Salary B is larger this will provide you with the percentage of the budget that B needs to contribute. So,

Salary A = $2000 (41.7%)

Salary B = $2500 (58.3%)

Budget = $3000

A contribution = $1250 ($750 leftover)

B contribution = $1750 ($750 leftover)

$0 difference

If there’s a more equitable arrangement than this I’d love to hear about it.

Update (11/1/15): Our paychecks are now deposited into our joint account and we manually move our share to our personal checking accounts. This works better for us as it guarantees that bills can be paid if we’re unable to move money around for several days.