According to Statistics Canada, roommate households grew 54% between 2001 and 2021! This increase means they are the fastest-growing household type in the country. Budget management on your own can be challenging enough as it is. Adding a roommate into the mix adds some complexities that are good to be aware of and learn how to navigate. The article aims to help you do just that!
Sharing a home with a roommate has benefits like cost reductions, but there can also be challenges. Without clear communication and systems set up for managing the finances, it can add stress to your relationships. Starting conversations about your personal finances early and often can make things easier.
How To Get Started
Start by scheduling a time to talk about money and build a solid plan together. Could it be awkward to talk about money at first? Yes, because the topic is often considered taboo. Should you skip it to avoid the awkwardness? Absolutely not! A little awkwardness now beats a lot of future resentment and financial stress. Remember that talking about money isn’t rude or crass. The more we talk about money, the more normalized it becomes, and that benefits everyone. That’s one reason I’m a fan of loud budgeting!
How Should Roommates Manage Household Finances?
It can feel a lot like learning how to create a family budget, but with roommates instead of relatives. Like most things in personal finance, there isn’t a one-size-fits-all plan. Learning how to create a budget with someone takes a bit of trial and error, but it’s worth it.
Start by listing out all shared expenses, like rent, utilities, and internet. You and your roommate(s) don’t need to have your personal expense numbers before the meeting, but it will help. Knowing your numbers, including your fixed expenses and your flexible spending, like groceries and takeout, helps you see the big picture and make decisions together.
Then, sort every item on your joint expense list into needs and wants. Rent and utilities go in the needs column. A fourth streaming service? Most likely in the wants column. Including this detail in your plan is helpful if you find expenses need to be cut so they work for both of you.
How Should You Split Costs?
Here are a few common ways for splitting expenses:
- Equal split: Everyone pays the same amount toward the shared expenses. It’s simple, and it works best when the household space is fairly evenly divided.
- Split based on the size of your individual spaces: Does one of you have the primary bedroom with an ensuite, and the other(s) have smaller bedrooms and a shared bathroom? Adjusting the split to reflect this is a fair option.
- Income-based split: This is more common when living with a partner/spouse with separate finances, but it can work with roommates too. With an income-based split, each person pays a percentage based on their income. If you bring home 60% of the combined household pay, you cover 60% of the shared expenses.
- Fixed vs. variable expenses: Another big consideration is what you include in the split. Will only fixed expenses be included? Or will variable expenses, like groceries, also be part of the split? It’s common to only include fixed expenses and have each person take care of their own groceries. Splitting variable expenses can often be hard to keep track of, and could cause issues if you have different dietary needs.
It’s also a great idea to have a formal roommate agreement that lays out all the details, including how you will split expenses. You don’t move in with someone planning for the relationship to break down, but it happens, so it’s important to protect yourself.
Shared Budget Management Methods
You’ve got the split all planned out, but you’re not done yet. Budget planning logistics are also important. Here are a few budgeting methods for the logistics:
- Divide who pays for the expenses: Based on the split you’ve decided, review the costs of each expense and divvy them up. The goal is to align them with the agreed-upon split. This can help minimize back-and-forth transfers, which create extra tracking.
- Joint household account: With a shared account, you can determine how much each person adds to the account each month. Then set up all the joint expenses to come out of the shared account. To ensure you always have enough money in the account, it’s a good idea to keep a buffer in the account.
- Shared tracking tool: This could be a spreadsheet, an app, or a budget planner. Try different tools to see what works best.
Whatever budgeting strategies you decide on, having a regular check-in keeps things running smoothly. At least once a year, review the joint expenses and look for any changes to determine if adjustments should be made.
How to Navigate Any Financial Issues
TVs die. Couches break. Roommates move out. Small surprise costs can wreck a shared budget, so consider them in your plan. If you estimate $600 a year, that’s $50 a month, or $25 each for two people. Park it in a shared emergency fund and let it grow. For higher one-off costs like replacing furniture, you can also set shared financial goals and track your progress together.
Cash flow is also something to consider. Cash flow problems can show up when someone’s pay schedule doesn’t line up with larger expenses, like rent. If cash flow issues hit, speak up and ask for help early. Staying silent about issues you see coming will add stress to the relationship.
Keep the Money Talks Going
Financial decision-making gets easier when the lines of communication stay open. Before you make big financial decisions, loop in your roommate(s). The more you can plan ahead, the better. Including an FAQ in a roommate agreement can help guide future decisions. Who pays any late fees? What happens if someone leaves? What situations call for a budget rule? Frequently asked questions like these, and planning ahead, create clarity to help you and your roommate(s) maintain positive relationships.
Your Next Steps
Set up a money meeting with your roommate(s) to get the conversation started. You’ll find that just that alone will go a long way to keeping things on track. If you or your roommate(s) are having difficulty making ends meet because of debt payments, it may be time to explore debt relief options. Talking with one of our trained credit counsellors is a great way to learn about what options are available and which one might be right for you.
