Picture this: Your wife comes home and announces that she’s been promoted and will be getting a 17% pay raise. You’re super excited for her because she’s been hoping for this promotion. You celebrate with dinner and a bottle of wine, but the next day you start to feel anxious. You start to feel a twinge of envy.
Ever since you’ve been together, you’ve had the larger salary though not by much. Things will be different now; the balance has changed. How do you successfully manage your money as a couple now that she’s earning the bigger bucks?
There are several ways successful couples with disparate incomes manage money. There’s ultimately one key though — successful couples have the #RealMoneyTalk.
Successful couples discuss how, as a couple, they can both comfortably manage money so that neither partner feels taken advantage of or feels they have less of a say in the relationship. Any one of these money management styles will work, when it’s mutually agreed upon honestly by both parties. The success of any option you and your partner choose is up to you.
Matthew Carriglitto, a CPA for Holm Ryan Truitt Hall, LLC in Colorado says, he sees income gaps in his profession all the time. He says, “From a quality of relationship perspective, the more you can be on the same page about money, the better. If one of you hates debt and the other has ten maxed out credit cards, your pay gap will be a problem.”
PS: If you’re not sure where you and your partner stand with your finances, you can use Turbo’s Combined Household Income View to see your holistic picture.
Once you and your partner are on the same page about your money management, use one of the following three strategies to pay your bills considering your pay gap.
The 50/50 Split
Even though there may be a wage gap, and even if it’s significant, some couples feel it’s important for each partner to put an equal share of money toward the household and family expenses. For these couples, a sense of “things being fair and equal” weighs heavily on their decision. For the higher wage earner, they may have a separates savings or investing account for extra wages, contribute more to their own retirement plan or use the extra money to support causes they deem important.
This option gives one partner some financial freedom that the second partner may not have, which some may find uncomfortable. The 50/50 Split usually works best when there’s a smaller income gap rather than a larger one. It’s important to note that this division of finances can be difficult when one partner is transitioning from one job to another, has irregular pay or is without a job and lacks significant personal emergency savings to cover their time without income.
Pro Tip: The 50/50 Split is best done when both parties contribute equally into one primary account for all the expenses for which they’re responsible but then maintain separate accounts for their additional funds.
The Divided Split
The Divided Split of household and family expenses is another way for couples to successfully share financial responsibilities and feel that each partner is taking on a portion of the expenses with which they are comfortable. When a couple decides to go with the Divided Split, they’ll look at all their household expenses and then separates expenses into Hers/His, Hers/Hers or His/His to the extent that all household expenses are covered by one of them.
For example, one partner may cover all the rent or mortgage, while the other partner covers utilities and groceries. The important point here is that each partner, again, feels they’re responsible for a portion and will commit to managing “their” expenses separately.
The Divided Split works best when there is a larger wage gap, or when one partner was already responsible for an expense, such as the mortgage before they became a couple. Like the 50/50 Split, the Divided Split can also be difficult when one partner is temporarily without a job or income due to building a business.
One of the couples we know splits their expenses this way. The higher wage earner once confessed to us, “I know I have and make significantly more money than [my husband,] but that shouldn’t stop me from enjoying the life I want. If that means I pay for a $10,000 vacation and he pays the water bill, I’m happy with that.”
Pro Tip: The Divided Split is best done when each party maintains their own accounts for paying expenses.
The Percentage Split
By default, this is the most common way for couples to split household expenses. Most couples operate as partners with a common goal. In these cases, it makes sense that they combine their assets and work together as a team to achieve their financial goals.
Does it work? Yes. For most couples, all or almost all their money from each paycheck goes into a common, joint account and their expenses are all paid out of that joint account. Therefore, a portion of each paycheck is going to pay for every expense.
The Percentage Split can be managed from each partner’s individual account, it’s just this often means more work. This strategy does, however, encourage couples to maintain an open dialogue about their money, as each month when expenses are due, they must decide the portion that each will pay. As a Honeyfi study recently showed, couples that regularly talk about money are less likely to fight and, generally, report being happier. That’s a win-win-win!
Pro Tip: The Percentage Split works best when there’s one primary “funding” account for all expenses with each partner committing to depositing into this account all of their paycheck or an agreed upon percentage of all household expenses to cover each pay period.
Ultimate Pro Tip: The Debt Free Guys recommend that all individuals or couples maintain two checking accounts, one for fixed dollar expenses such as, rent or mortgage, car payments, insurance, etc.; these are expenses that don’t fluctuate from month-to-month. Automatic payments through Bill Pay can be made from this account so payments are never missed. The second account is for all other, flexible, expenses, such as groceries, utilities and dining out.
Regardless of the method you and your partner choose, the most important point to successfully managing your family finances is talking about your finances. Pay gaps between spouses come and go. If you have honest discussions about how to pay your bills, your wage gap won’t be an issue.