Cindy Lamothe
·4 min read
Financial planning when you’re single is already hard enough to manage, but add another person and things can get really tricky. In one of her recent episodes for CNBC Television, “Women & Money” podcast host Suze Orman offers advice on how couples can split their finances successfully without straining their relationship.
“People say ’til death do you part. I don’t think so. It’s ’til debt do you part,” she said.
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Orman stressed that all too often, the person who makes the most money is the one that feels they have the most power.“But money doesn’t determine whether you’re powerful or not,” she was quick to point out.
Below are her suggestions for splitting your finances as a couple.
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Be Your Own Person
Offering her own experience as an example, Orman said she and her partner haven’t opened one joint bank account in their 20-year relationship. “She has her money; I have my money,” she explained. “And it works just fine.”
Orman said the last thing you want to have to do is ask permission.“You all should be autonomous human beings, you came into this relationship as an autonomous human being. You have to have money of your own.”
She added, “You might have a joint account for joint expenses, but you each need your own individual accounts.”
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Don’t Just Divide by 2
In her interview, Orman offered a hypothetical situation: “Let’s just say you move in together and your partner or spouse is making $7,000 a month take home. And you’re bringing home $3,000 a month take home. But yet your joint expenses are $3,000 a month.”
The money expert explained that most people would say, “Well, let’s just split it.” But she disagrees with this notion.
“$1,500 a month for you is 50% of what you’re bringing in. Versus maybe 25% of what your partner or spouse is bringing in. That’s not how you’re going to do it,” she said.
Use Percentages
“This is what I want you to do,” Orman continued. She suggested combining both incomes of $3,000 and $7,000 to make $10,000. And then divide that into the household expenses which is $3,000. Expenses divided by income should give you a percentage of 30%.
“Therefore, 30% of your $3,000 a month take home or $900 goes into your account. 30% of the $7,000 which is $2,100 goes into their account. That’s $3,000,” she explained. “Equal percentages but not equal amounts of money.”
Set Up an Emergency Savings Account
After establishing percentages, Orman reiterated the need for couples to have both a joint and a separate account.“The former ensures that you’re protected as a couple; the latter is where you find the certainty that you’ll never be dependent on somebody else,” she advised a reader in a story for Oprah.com.
Orman recommended having a personal reserve that equals three months of your living expenses, while the joint account should cover 6-8 months.
“I recommend a hefty joint fund so that if one of you were to lose your job or become ill, you would have enough to get by for a while,” Orman wrote. “At the same time, if the relationship doesn’t work out, you will have your own nest egg to fall back on.”
In a separate blog post, she expanded on why having up to eight months of living expenses saved in an emergency fund is so important.
“I know that’s a lot, but I want you and your loved ones to be OK if you were ever laid off or sick for an extended period of time,” she noted. “Sure, it could take years to reach your eight-month goal. That’s totally OK. The important issue is that you are starting to save today and so every month you will be moving closer to your goal.”
Live Within Your Means
As a self-made millionaire, Orman has become one of the most respected voices in finances, and one of her golden rules is to live within your means — whether you’re single or in a relationship.
“How much you choose to spend on your basic needs is a squishy number dependent on the choices you make,” she said. “For example, a mortgage lender may tell you that you will qualify for a $250,000 mortgage. But if you can find a great home that meets your family’s needs and it costs $195,000 you will save a lot of money that can be used for other important goals. The $195,000 home fits your needs.”
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This article originally appeared on GOBankingRates.com: How To Split Household Bills, According to Suze Orman
