Why should you care?
What will you learn?
Different living situations require different ways of managing the divide of bills and rent, e.g. students, housemates, cohabiting couples.
In this post, we’re going to explore how you could split rent and bills, in each of these situations, and how you can keep track of it all.
1. Split Rent by Room Size
Let’s assume there are three bedrooms in your 2,000 sq. ft. house and your total rent is £2,500 per month.
Bedroom 1: 100 square feet
Bedroom 2: 200 square feet
Bedroom 3: 250 square feet
You could simply estimate the split:
Tenant 1: £650
Tenant 2: £850
Tenant 3: £1000
If everyone’s happy, this could work. However, you’re the kind of person who chooses to read a post on financial planning; we assume you want absolute precision.
Let’s assume that all communal areas add up to 1,450 sq. ft.
1,450 / 2,000 X 100 = 72.5%
Next, we deduct 72.5% of the rent from the equation, because that gets divided equally.
£2,500 X 0.725 = £1,812.50
Divide this between the tenants:
£1,812.50 / 3 = £604.17
So, every tenant, regardless of the size of their room, will pay at least £604.17.
Now, let’s express each room as a percentage of the square footage of all three: 550 sq. ft.
For Bedroom 1 we would get:
100 / 550 X 100 = 18.2%
Here are the totals for each bedroom:
Bedroom 1 = 18.2%
Bedroom 2 = 36.4%
Bedroom 3 = 45.5%
Total extra rent paid for Bedroom 1:
£687.50 / 100 X 18.2 = £125.13
Add this to the base rate we calculated for the communal areas:
£604.17 + £125.13 = £729.30
Here are the final rents for each room:
Bedroom 1 = £729
Bedroom 2 = £854
Bedroom 3 = £917
Of course, if someone has an en suite, you’ll have to factor in the value of that sweet, sweet privacy, too.
Remember, 3 out of 2 people are bad at maths, so it’s probably best to use an estimate.
2. Split Bills by Income
This one’s for all the lovers out there.
If one of you makes more money, you could split rent and bills proportionally. At first, this may seem unfair to the higher-earner.
Imagine you earn more than your partner. You know you can afford to spend more money, and therefore, you probably will. This might force your partner to spend above their means—not such a great omen for a healthy relationship.
Talking to your significant other(s) about personal financial planning might sound about as romantic as a fork in the eye. Unfortunately, it is a necessary conversation to have—it might even improve your relationship.
Kristy L. Archuleta, from the School of Family Studies and Human Services, Kansas State University wrote this paper about couples and their finances. She says it’s important for couples to share similar financial views and goals. Otherwise, they might discover issues in their relationships, too.
This is one conversation you might want to have.
An Equal Split? The Diner’s Dilemma
Wouldn’t it be better to just split the rent and bills equally? Nope.
In a study, investigating the real-world validity of The Diner’s Dilemma from The Economic Journal, scientists measured people’s consumption habits when splitting the bill and paying individually.
When people expect to pay an equal share of a variable cost, everyone ends up spending more money. Basically, if you know that everyone’s paying the same, you’ll buy more to maximise the value of your payment. An equal split is the least efficient method of division.
Splitting bills based on usage may seem stingy, but it could be one of those good saving tips that helps everyone in your house to save more money.
This method probably won’t work for a couple, though. It’s pretty difficult to work out who used more water during those rose-petal bath shenanigans.
Keep Track of Everything
We’ve all been there:
Dave bought Clara a kebab last week, but Clara reckons a Kebab is equal to the six-pack of Coke she bought you, and Dave owes you for an electricity top-up.
All square? Probably not. So, how can you keep track of everything?
You could create a house spreadsheet, which will total up all your outgoings. You could even set up a shared spreadsheet on Google Drive, so everyone can add to it, ad hoc.
You could get everyone to set up a monthly standing order, so everyone’s bills come out at the same time.
Apps like Splitwise can help you to split rent and bills and track group expenses, so you always know who owes who for what. Always check out the underlying costs of these services before you sign up; some have been known to alter prices, and overcharge for the privilege.
Remember, when you share rent or utility bills with someone, credit reference agencies tie your credit report to them—even if only one of you is named on the account. If they fail to pay their portion, you might get a black mark on your credit report.
Budgeting Tips For Young Adults
For young adults especially, budgeting can be extremely difficult. Without a working knowledge of your monthly budget, you’re likely to overspend, undersave or both.
Plus, in a houseshare, a monthly budget serves another purpose—proof. The next time Dave says you owe him for the electricity bill, you’ll have all the evidence you need to prove otherwise.
You could work out your monthly budget in less than an hour.