2006 C1D35: Suze Orman’s Equal Share Method for Merging Finances

I thought I’d take a break from racking my brain for fitness/nutrition-related babble to write here and discuss a personal finance strategy for couples that I got from Suze Orman’s Money Book for the Young, Fabulous, and Broke. (As an aside, if you are YFnB yourself or know someone who is graduating from college soon, this book is a great practical introduction and guide to managing your money, getting out of debt, saving for retirement, improving your credit score, and making large purchases like a car or home.)

To summarize, Suze says:

– Co-habitating couples need to be open about their finances, good or bad.
– Each person should keep their own credit cards and checking accounts in their own names, but a separate shared checking account should also be opened in both names.
– This shared account is used only for shared expenses such as housing, utiltities, food (groceries and dining out), home repairs and maintenance, and entertainment.
– The amount that each person contributes to the shared account is based on equal percentage share vs. equal dollar amount.
– Each person’s contribution needs to be transferred into the shared account several days before the bills are due.
– The couple sits down and pays their shared bills together so there won’t be any surprises.

Now let’s get down to the specifics of “Equal Shares.”

1. To calculate how much each person should contribute, add together your monthly take-home pay. This is the amount after taxes, personal and school loans, insurance premiums, retirement contributions, and other fixed personal expenses are taken out.

2. Next, add up your total shared monthly expenses: Rent or mortgage, insurance, utilities, groceries, dining out, home maintenance, entertainment, pet food and supplies for any shared furry kids, and anything else you use or do together.

3. Add an additional 10% (shortcut: Multiply the amount in Step 2 by 1.10) to your expenses for unexpected expenses.

4. Divide your amount in Step 3 by your total take-home pay (Step 1). Unless you are living way above your means, this number should be less than one. What you are basically doing is determining what percent of your take home pay needs to go towards shared living expenses.

5. Multiply each of your take home pay amounts individually by the result of Step 4. This is the amount each of you needs to contribute to the shared account.

——–
Let’s apply this to some actual numbers:

Step 1: Sue takes home $2500 each month. Her boyfriend Tom takes home $2000, giving them a total take-home of $4500 each month.

Step 2:
Their shared expenses are as follows:

Mortgage: $1300
Electricity: $80
Natural Gas: $75
Phone: $60
Water/Garbage: $30
Insurance: $200
Cable/Internet: $100
Groceries: $250
Dining Out: $50
Entertainment: $150
Home Maintenance: $100

Total: $2395

Step 3:
Total + 10% = $2395 * 1.10 = $2634.50

Step 4:
2634.50/4500 = 0.585

Step 5:
Sue’s share = $2500 * 0.585 = $1462.50
Tom’s share = $2000 * 0.585 = $1170.00

——–

Chris and I are giving this system a shot starting this month. We’ve already done the calculations and set up the shared checking account. We’ll both have our contributions automatically transferred into the shared account each month to streamline the process. Certain bills which are the same amount each month will also be automatically paid from the account without any action on our parts. Everything else will be paid using the free online billpay feature that comes with the Wachovia Free Checking accounts or with our Visa check cards in the case of groceries, restaurant meals, and other brick and mortar purchases.

I will report on how well it works out over the next few months.

========================================================
3/14 Report
(*Diet and workout details omitted by agreement with trainer)
==========
Nutrition:

Meals – On plan
Water – 16 cups
Supplements – On plan

Regular (Non-Plan) Daily Supplements – multivitamin with iron, calcium 600 + D

34 days down, 50 more to go!

===========
Workout:
Weights – Shoulders/Abs – Done
Cardio – Elliptical – Done

===========
The Awful Truth:
1. Only got 5 hours of sleep. 😯

===========
Brownie Points:
1. Prepped lots of rice and chicken for company potluck.

===========
Short-term Goals:
1. Work on paper doll sketches.
2. Sew Issey Miyake dress.
3. Upgrade WordPress to 2.0.
4. Transplant two tomato vines and plant Swiss Chard.
5. Finish taxes.
6. Sew new workout shirts.
7. Create new logo for PDB shirts.

7 thoughts on “2006 C1D35: Suze Orman’s Equal Share Method for Merging Finances

  1. I’ve thought about using percentages of take-home pay like Suze’s system but I could never get over the feeling that I was being punished for taking home more pay. Sue has to pay more because she makes more? It seems like Sue should be rewarded for making more money by having extra discretionary income after all of the bills are paid. Why not just split the bills 50/50 regardless of individual income. Then maybe Tom would work harder to get a promotion or find new business. Instead he’s being subsidized by Sue’s success. I’m not saying that Sue is “better” for making more money. But more money is better isn’t it? And, I feel like, ostensibly, Sue is being punished for being better. Just my thoughts.

  2. Brandon–In the original example from Suze’s book, the two take home pay amounts were $1500 and $2500, and the monthly expense total was $3000. If the two individuals were to split bills 50/50 in that case, then the one making $1500 would have to give up ALL of their take home pay for shared expenses, leaving them with nothing at all for personal discretionary spending.

    This doesn’t seem entirely fair either, though I do see your point. In cases of widely varying incomes, however, 50/50 isn’t even possible–What if the take home split were $1000 and $3000 and the expenses $3000?

    In any case, even if one member of the couple IS paying more in actual dollar amount for shared expenses, they are still paying LESS than they would if they were handling all those expenses alone.

  3. Also, Sue DOES still have more discretionary income than Tom, $1,307.50 to $830. It might make sense to go 50/50 if Tom gets to make most of the decisions on expenses, so that they are living within Tom’s means. But if Sue wants to upgrade and has the income to do so Tom shouldn’t have to kill himself to match Sue’s spending and have nothing for himself.

  4. Yeah, I was in a relationship where my partner earned…
    4 times what I did? :/

    I did most of the cooking, cleaning, paid for exactly half of the bills, *and* helped him sort out his finances (he earned more, but… meh, anyway).

    Let’s just say breaking up with him was a huge financial relief on me. I was able to live closer to *my* preferred budget, and was finally able to save some money.

    He did thank me, when I saw him much later, for enabling him to save so much of his income – he’s never managed to save much before or since.

    I thought I was being ‘fair’, but, I didn’t think about how much I was financially disadvantaging myself. Or even, how much of the financial ‘burden’ I was really picking up.
    In future, I’d prefer doing it something like this, or preferably, with a cap at counting one partners income. I wouldn’t want to be paying less than a 1/3rd of the expenses, but it shouldn’t be more expensive for me to live with someone than to live alone.

  5. this was written 3 years ago. curiou sto know if it still working for you. do you still ocmbine s orman with DRamsey?

  6. Suze’s system for merging finances worked perfectly for us all the way up to March 2009 when we decided to go ahead and start pooling our money completely together in the shared checking account. This wasn’t because her system stopped working or failed; we (meaning “I”, the Nerd of the household) simply found it easier to plan for big expenses, shared goals, and other expenses when our paychecks were dropped into one account.

    We still have our separate accounts, but these are used for our fun money and lunch money for the most part. Everything else comes out of shared checking.

    However, this was done AFTER we were married. If you aren’t married, I still think Suze’s plan for merging finances is the best way to go to limit messy entanglements and potential problems if a split occurs.

Leave a Reply

Your email address will not be published. Required fields are marked *

*
To prove you're a person (not a spam script), type the security word shown in the picture. Click on the picture to hear an audio file of the word.
Click to hear an audio file of the anti-spam word