Mailbag Monday: Funding a Household Account
Hi Jean,
On a recent show you mentioned that in your family, you have a joint household budget and checking account as well as a separate one for personal spending. If we have two individual incomes and one is higher than the other, how do we determine a fair percentage from each income to place in the joint budget to make things equitable? Also, once fixed expenses are covered in a joint account, how do you address covering the miscellaneous household expenses that frequently come up during the month? Any help you can give me regarding this issue will be great. I love your show and look forward to it weekly.
— Jim
Thanks for the kind words, Jim! I’m glad you’re enjoying the show.
The way you handle disparate incomes is to contribute an equal percentage — not amount — of your incomes. And to figure out that percentage, you need to back into it a little bit. That means calculating how much you need in that joint household account, which may mean spending a month or two tracking your household spending, because some of these expenses, as you noted, are going to fluctuate.
First, add up all of the fixed monthly expenses — the mortgage or rent, the car payments, insurance, cable. Take an average of the ones that fluctuate each month, like the electric or gas bill. And then track your spending to get a handle on those miscellaneous expenses. To account for those, you’ll want to pad the account by rounding up your contribution percentage a little, then keep in mind how much you have in the account to cover them. That means knowing what you can afford that hasn’t already been accounted for (like a slightly-higher-than-average electric bill) and what might necessitate a dip into the emergency fund (like an emergency visit to the vet). You can also include an amount you’d like to save jointly in your total, perhaps to pump up that emergency fund or prepare for next year’s summer vacation.
Once you’ve done this legwork, you’ll have a total amount that needs to be funneled into that joint account to keep your household ticking. To settle on the percentage you’ll contribute, you’ll need to do a little math. So let’s say your household expenses total $3,000 a month. Your take-home pay — and it’s important you use take-home pay for this, which means the money that lands in your checking account each month after deductions for taxes, retirement contributions, and anything else your employer pulls out automatically — is $3,000 and your partner’s is $3,500. That means the amount needed in your joint account is about 47% of your combined take-home pay of $6,500. You each need to contribute 47% of your monthly after-tax income to make it work. But to pad it a little, maybe you want to round it up to 50%. You’ll contribute $1,500; your partner will kick in $1,750, which gives you a nice buffer of $250.
