How to effectively manage funds as a couple

In this article we talk about “How to effectively manage funds as a couple” or at least the best way to manage your funds, ideally this best works for people that have some sort of relationship and are living together, a relation between brothers living together or individuals in serious intimate relationship or courting and/or married people.

Nonetheless, this method can also be used to effectively manage funds for a household, where basic needs and amenities are shared. Siblings renting an apartment or a family receding in a homestead is a good example to apply this method.

For the purpose of illustrating how you can actually effectively manage your funds as a couple and/or individuals, we will use some a of case study to illustrate the whole concept. As such for the purpose of this article we will create a typical fictional couple in a serious relationship and their financial portfolio.

Let assume that Maria and Pedro are a couple, Where Maria earns a total income of N$ 26 500.00 after basic payslip deductions and Pedro earns N$ 18 500.00 respectively, this then gives a total combined income of N$ 45 000.00; and to be fair, this amount is close to the average household income in Namibia.

Now that we are all set, let me share with you, how you could potentially manage the funds effectively. Let’s go through it step by step as follows:

1. Determine the percentage (%) share of each.

Just like banks, furniture stores and any other business determine if you as an individual can afford to take out a loan, buy furniture on hire purchase, or buy a car.

You will need to determine the capacity of how much each individual is able to afford on their own capacity.

This important because it liberates you and yours truly, from huge financial burdens, it basically gives room for you to breath.

In our scenario, Let us determine Maria and Pedro’s capacity to afford their household needs.
 
To determine Maria's % we calculate it as follows:

Marias Total Income / Combined Income X 100; which will then be: 26 500/45 000 X 100 = 58.89 %
    
Similarly, to determine Pedro’s % we calculate it as follows:

Pedro’s Total Income / Combined Income X 100; which will then be: 18 500/45 000 X 100 = 41.11 %

With that quick math, we now know that Maria and Pedro can each afford 59% and 41% of their household needs respectively.

2. Determine The Combined Monthly Expenses

To manage any funds appropriately one needs to budget and apply various budgeting techniques like the 50/30/20 rule or any other techniques that exist. In this step we will first determine the couple’s household monthly expenses and thereafter obtain their total monthly expenses.

To further build our case, we will assume the following expenses for Maria and Pedro:

With the above expenses, Maria and Pedro’s combined monthly expenses is a total of N$ 24 000.00.

The next step is then to determine how much each person can contribute to the household expense based on their percentage share.

3. Determine Each Individual Fair Contribution To The Household Expenses

Based on previous information, at this stage you should then take each individuals percentage share as their contribution. That is, the each individuals % share will determine how much each individual will contribute to the total expenses.

This is fair because it accounts for how much each of you is capable of contributing based on your personal income.

With a total combined household monthly expenses of N$ 24 000.00, Maria is then expected to contribute 59% of the expenses which is based on what she is able to afford based on her income. 

Maria’s 59% contribution would then be calculated as follows:
Total Monthly Income X Maria’s % Share (59/100); which then equates to: 59/100 X 24 000 = N$ 14 160.00

Pedro’s 41% contribution would then be calculated as follows:
Total Monthly Income X Pedro’s % Share (41/100); which then equates to: 41/100 X 24 000 = N$ 9 840.00

With the above determined, both Maria and Pedro are able to contribute fairly to their household expense of N$ 24 000.00 effectively without anyone of them being financially strained in any manner.

Then again, you might want to know how that is fair? Or why didn’t we just split the total expense in half for each? Alright, in conclusion I will explain how that is fair and effective.

4. How It Is Fair And Effective

Managing funds in the manner discussed is both fair and equal because it takes into consideration what each individual earns and then factors in the amount they are able to contribute, based on what they can afford.

You will agree with me that, it is not fair or progressive for you to pay an expense you can hardly afford. This is also the main reasons our banks evaluate individuals before they can offer them a certain product like a bank loan, they understand the difference between having money and the ability to afford items.

The fact is that the ability to afford items for each individual is different, as such with more income comes an equal fair contribution and/or a Namibian tax bracket.

Let’s talk Maria and Pedro, each at N$ 14 160.00 and N$ 9 840.00 respectively. This is fair, effective and equal based on the rationale we just discussed above. 

To be more specific, based on those contributions both Maria and Pedro would have N$ 12 340 and N$ 8 660.00 left in their respective accounts that they can spend on whatever they want, and quite honestly those are decent amounts as surplus money in the bank account.

In addition, the remaining personal funds can be used to cater for other expenses that they may want to have, perhaps an expense like black tax that your partner was not comfortable sharing or maybe that birthday present you wanted to buy your partner.

The thing is, the method effectively covers your basic needs and expenses as a couple and still allows you to have a decent amount left in your pocket, now that is “How to effectively manage funds as a couple.

Why splitting the total expense in half Is not ideal

Splitting the total expense in half can be done but I am of the opinion that it would not be fair and just, this because it would mean each individual would pay N$ 12 000.00

This would then leave Maria with N$ 14 500.00 and Pedro with N$ 6 500.00. This method is then unfair to Pedro because he is now covering a bigger portion of the household expenses than he can afford. Whilst Maria is covering less of the total expenses despite having more income.

This can lead to a financial strain on Pedro, and you don’t want to do that to your partner. Remember you are a team.

All in all, I am not a financial advisor but I do believe the above method can significantly improve how finances can be managed effectively in a household and/or between couples.

What are you thoughts on this article? Feel free to drop your comments below.