You'll know quite how much budgeting is involved if you've bought a home or are looking to buy one (we have a number of tools to help you if you're interested) but what about organising the household budget when you move in?
The following tips can apply just as much if you're renting and should help you live more harmoniously together while sharing your home!
1 - Decide the Expenses You'll Share
You'll want to split bills for utilities and basic groceries as part of the overall household budget. If you share a pet, you may want to add food costs, pet insurance etc. to the budget as well. You may even want to put aside a set sum as an emergency expenses reserve as well, perhaps £500.
2 - Agree to contribute based on a percentage of your income
We offer this tip because of the large disparities which sometimes occur between sharers' income sizes. If there's two of you and one of you earns vastly more than the other, if the person with the lesser income is expected to stump up half the household budget, this might be crippling.
You should therefore consider agreeing to contribute the same percentage of your income to the household budget. Naturally you'll have to trust each other's honesty about disclosing how much you earn, but if you haven't established a good level of trust by this point, you might struggle to do so in future!
As a general rule, if you're not married to another sharer, you should keep most of your expenses separate.
This is in case you have to split your house share up. You may even have decided with your other sharer/s when you'll look to go your separate ways; either way, it'll make things easier.
And remember, if you are a couple, you don't receive the same protections under the law in the event of a break-up; however you can both draw up an agreed Deed of Trust (discussed below) which can protect your individual interests.
3 - Work out what you should be contributing
This really follows on from tip 2. Work out what your monthly household budget is likely to be first, then divide it in proportion to your respective monthly incomes. So if you're household budget is £600 per month and one of you earns twice as much as the other, the larger earner would pay £400 monthly and the smaller earner would pay £200 monthly.
4 - Open a current account for your household expenses
It's an excellent idea to organise a current account where every sharer is a signer and you all contribute to it by regular standing order. And its worth opening this at a different bank from the ones you normally bank with, to avoid any complications.
This way, you know that certain expenses are always covered by joint contributions and there's no danger of any of you 'polluting' this account by dipping into it for unauthorised and personal purposes. The converse is that you also won't have to take sudden large hits on your own account for communal expenses - something which can cause huge arguments when unexpected bank charges are involved and, of course, things which might affect your credit rating (unauthorised overdrafts).
5 - Look after personal expenses yourself
Following on from tip 4, you should completely avoid making personal expenditure on communal money. It simply isn't fair (and you should get found out very quickly). But this is also a positive tip - you have to look after yourself, including into your retirement. It's a good idea, if at all possible, to save up to 15% of your income to put it towards the time when you won't be as active in generating income, assuming you live to that age(!).
Additionally, we've mentioned having a household emergency fund; why not also have your own emergency fund? There are umpteen items in life which should never break down...but sometimes do, and which you haven't taken out an insurance policy to cover. Think spectacles, for example...
6 - 'Drill down' into your own spending habits and budget further
This is obviously 'personal' rather than sharing-related, but it's something every sharer should do anyway. So many people have little real idea about their spending habits or at least in trying to frame them before actually spending. They simply have a bank account where income arrives monthly in one (hopefully large!) sum then they whittle it down over the course of a month without overthinking.
If you actually categorise your spending into areas such as eating out, clothing, annual payments (think car insurance for example), gifts and one-off spends, you might be taken aback by how much (or even how little) you spend in certain areas. As is so often in life, the more knowledge you have about it, the more likelihood it is that you'll make improvements to a situation. You might actually be dumbfounded by your coffee bar bill...and think to buy your own espresso machine perhaps(!)
7 - Unmarried couple? Think very carefully before making large joint purchases
If you're romantically involved with a sharer, in the first (or second or third) flush of love, you'll most likely be up for sharing everything and making large gestures. You should, however, think very carefully before deciding to buy a car together or something on a par in expense terms. The fact is, you could split up, and then might find that that joint purchase is a millstone around both your necks when it comes to unpicking things...
If you're unmarried and have a child/children together, you'll obviously want to include your childcare costs in the household budget.
You might want to plan for a day when you really will share everything equally, and there's nothing to stop you saving separately with this eventual scheme in mind.
Protect your Individual Interests with a Deed of Trust
You can 'double-down' on protecting your individual financial interests in any kind of co-buying arrangement by drawing up and signing a mutually agreed deed of trust.
You can keep it basic and just address what percentage share of a house each of you owns at the outset and what will happen if you sell up, but you can fine-tune things by setting down what each of you will put towards monthly mortgage repayments and how this will be recognised in ownership terms.
You can even agree house rules if you wish. You might find the idea of a deed of trust as a fun spoiler and unromantic, but we've found that many people like the idea of setting down a firm, legally-binding, mutually-agreed commitment to start with - it firms their resolve towards sharing a positive outcome. And, most of all, if things go wrong, it offers you protection which basic law might not.
