Joint household budgeting conundrum - any takers?

bpk101

Hi,

I'm trying to work out a joint household budgeting system where the two individuals contributing are proportionally splitting the total cost of bills on a true and fair representation of their respective monthly take-home salaries.

However, as described below (using illustrative figures), the way each persons pension contributions work means the monthly take-home figures may not be based on a comparative set of factors.

Person A is a full-time employee, after deductions their taxable income is £200,000
However, they also contribute £1000 a month to a work pension via ‘salary sacrifice’ bringing their total taxable income down to £188,000.
Tax and NI is deducted and a monthly take-home figure arrived at. 

Person B is self-employed, after deductions their taxable income is £100,000
They too contribute £1000 a month to a (self-invested) pension, but it’s not classed as a tax deductible expense and their taxable income therefore remains at £100,000.
Tax and NI is deducted – with any 20% higher rate pension relief accounted for – and a monthly take-home figure arrived at.

Person A and B plan their monthly household budget and calculate their individual contribution so that it’s in proportion to their respective monthly take-home figure. All household bills are then paid.

However, Person B still has their monthly pension contribution to make from whatever they have left after bills. 

So... would this be deemed a fair system or would it be fairer if Person B deducted their pension contribution (adjusting for any higher rate tax relief that might come back to them) before the split of household bills is worked out?

eskbanker

If you're going down that route (and it would be anathema to many), then using take-home pay figures that are reasonably like-for-like would seem the most equitable, i.e. treating pension contributions as a deduction for neither or both people, rather than just one.

bpk101

eskbanker said:

If you're going down that route (and it would be anathema to many)

Why would many find this route dislikable? 

Ebe_Scrooge

bpk101 said:

eskbanker said:

If you're going down that route (and it would be anathema to many)

Why would many find this route dislikable? 

If we're making the assumption that you're talking about a married couple, then many people find it somewhat unusual to split finances this way.  The majority of folk just treat the household income as joint - income and outgoings belong to the "family" and everything just goes into one big pot.  Obviously not everyone works this way - but it's kind of seen as the "norm".  And what happens when you come to retire - do you each just live off your own pension, or do you still split everything equally?

Not saying it's right or wrong - just highlighting that lots of people find it an odd arrangement.

PRAISETHESUN

In my mind, the fairest way is to use taxable income before pension deductions (ie. 2:1 split). Either that or person B uses their post-pension deduction income as the basis for the split (in the same manner as person A) as eskbanker suggests. Ultimately how much of a difference to the split does it actually make when you run all the possible combinations? I suspect not very much unless someone is putting 50% of their salary into pension or something.

eskbanker

bpk101 said:

eskbanker said:

If you're going down that route (and it would be anathema to many)

Why would many find this route dislikable? 

As above, many work on the genuine partnership principle of 'what's yours is mine and what's mine is yours', but each to their own!

turnitround

I will never understand the thinking behind splitting bills when 2 people live together, especially if they are partners or married.

So many variations and ways to think.  If the 2 people are not partners but just cohabiting then why should one persons liability be less than the others if they both benefit equally as a result of bills being paid just because one person earns more than the other.

If the higher earner has worked hard to get a better job and salary why should they be obliged to subsidise the other.

If the 2 people are partners or married then why is there even a discussion about paying different percentages.

My husband is disabled and so I worked far longer than he was able to so the majority of bills were covered by my wage. Had he ever said that I ought to pay more because I had more coming in then I would have been very offended. I was at work all day, he was at home with the heating on, should I have told him he was not allowed the heating on till I came home as I was paying more than him.

It's called pulling together and there seems precious little of this happening these days.

cx6

My advice would be to split all bills 50-50.

bargainbetty

At those levels of income, it seems silly to be arguing, but personally I would say that the pension contribution should be taken into account to level the starting point. 

Zanderman

I share the view that such splitting seems odd. I cannot see the logic of one person paying a higher proportion of bills just because they earn more.  Do they eat more too?  Have more showers?  Use more loo roll?  If the house is shared it is shared, surely? 

But each to their own.  And, as Eskbanker says, the simplest thing, if the pensions are the problem, is surely to either take both pensions into account or neither.  I can't see a problem.


[Tbh if our combined household income was 300k before deductions I wouldn't be worrying about such subtleties at all. Mrs Zanderman and I have a combined annual income of less than a tenth of that!]

bpk101

Ebe_Scrooge said:

If we're making the assumption that you're talking about a married couple, then many people find it somewhat unusual to split finances this way.  The majority of folk just treat the household income as joint - income and outgoings belong to the "family" and everything just goes into one big pot.

But isn't this exactly the same as the system i'm describing? Only instead of each persons entire salary going into one big pot, it's just the amount required to cover household bills.

I.e. if Person A put's their full £200,000 into the pot and Person B put's there full £100,000 into the pot, and from that one family pot come out all of the family bills, then Person A's income has contributed to 66% of the bills and Person B's income has contributed 33% of the bills.

My system is doing exactly the same thing no?