Roommates can help ease the financial burden of renting, but the arrangement shouldn’t be too casual.
Having a roommate or two can help you handle the financial burdens of renting, because you don’t need to shoulder the total cost of your living expenses. Splitting rent with a roommate also can help you choose a better location that you couldn’t afford on your own — for instance, a Federal Hill apartment in Baltimore, MD, rather than out in the burbs. And roommates can help you save by reducing the amount you pay in utilities and shared household supplies. But to share the bills and save on the cost of living for everyone, you and your roommates must first decide how you’re going to split those expenses. That can be a complicated process, especially if you don’t make a plan before you sign a lease and move in together.
We gathered advice from a few financial experts on what to consider before you divvy up expenses among your roommates, including tips on creating agreements and what to do if your roommates don’t uphold their end of the bargain.
The exact way you divide expenses will depend on your situation, what rent includes, and what you and your roommates think is fair. This requires an open discussion with all parties so people can contribute and express what they’d like. Danna Jacobs, CFP and partner at Legacy Care Wealth, says there’s no one right way to split expenses. “What is important is that all members of the household agree and are comfortable with the arrangement. Some roommates prefer an even split, others use income figures to divide up expenses,” she says. “If there is a preferred space — like a specific bedroom or private bathroom — have that party contribute more for their accommodations.” That means if you’re occupying the master bedroom with en-suite bathroom, while your roommates have smaller bedrooms, you may want to chip in more for rent and utilities.
Kasey Ring, financial adviser and the founder of Upward Personal Finance, agrees that preferred and premium spaces should cost more when splitting rent. If utilities aren’t included in your rent, she recommends splitting those equally among roommates. In other words, even if you’ve got the master bedroom, you can still split the cable bill equally.
When it comes to actually collecting money, Ring suggests that each roommate on the lease carry a portion of the utilities — so you’re each contributing for each utility. “Post each monthly bill on a board and write each person’s share on the statement with the due date highlighted,” she advises. “Whoever is responsible for paying the bill can cross off roommates as they pay their portion. This will discourage roommates from pocketing the cash everyone contributes, as failing to pay the bill will only negatively impact their own credit situation.”
You can also pay one another using apps to make exchanging money quick and convenient. “Transferring funds is now easier than ever with technology, so use Venmo or other money tools to transfer funds to and from roommates regularly each month,” suggests Jacobs.
She advises doing what you can to prevent debts from accumulating between you and your roomies. “This leads to bitterness and frustration in the relationship that will bleed into all aspects of your friendship,” she says.
Jacobs recommends making agreements formal and binding for everyone involved. “If multiple parties are going to be responsible for a specific bill, try to have all those names listed on that account,” she suggests. She also advises putting all agreements in writing — before you move in together.
You should keep clear records of all agreements along with all payments made. This way, you have something to refer back to should a conflict arise. “If you don’t have an agreement in place yet, sit down with your roommates and write down the division of responsibilities within the household!” urges Jacobs.
If you’re the primary leaseholder on the apartment, you can also look at other ways to divvy up expenses without collecting separate amounts from your roommates for every cost.
Marcio Silveira is a financial planner and founder of Pavlov Financial Planning — and he’s also a former renter experienced in setting ground rules for roommates. Silveira and his wife used to sublet a room in their Brooklyn, NY, apartment. They charged a flat monthly fee for rent and included everything from utilities to internet in the price.
This spared them some of the headache of trying to split everything exactly. Silveira shares that they had a number of qualifications that subletters had to meet to stay. These included things like signing a written contract, providing proof of income and an employment verification letter, and even a one-page letter explaining why they’d be a good roommate.
He and his wife required one month’s rent as a deposit. They also requested copies of credit reports and scores before accepting new roommates. “Our ground rules led to great roommate experiences,” Silveira says, “and some extra money for us to travel the world and fully fund retirement accounts!”