How to Finance a Business

How to Finance a Business.

When it's time to finance a business, there can be substantial work involved to facilitate this step. Every small business is different, and businesses in different industries and sectors have different ways of going about getting credit. There are various costs which widely range over the span of particular sectors. However, for the core process of securing the financial assistance that a business owner needs for a start up, some basic guidelines and principles will help create effective programs and a solvent business model. Estimate the costs of doing business, find out what you need to borrow money, and then research your financing options.





Estimating Costs of Your Business.



Determine the one-time costs of your business. These are costs that will only occur at the very beginning of opening your business. These include mileage (getting to a location), market research, advertising, and training. You will also need to look up any fees which will occur, such as a lawyer or consultant fee.



Calculate the recurring costs of your business. These are costs that you will have to pay over and over again, usually on a weekly, bi-weekly, or monthly basis. These include costs of utilities, insurance, wages, etc. Recurring costs are generally larger than one-time costs, and span a length of 10-30 years depending on your financing options. Calculate not only the total cost over the lifespan of your business, but also that on a yearly, and bi-yearly basis.



Ascertain whether costs are fixed, or variable. Fixed costs are those which will not change. The cost of your utilities, or your administrative costs are all fixed. Variable costs are those which will change over time. This includes wages, insurance, and shipping/packaging costs. The best way to keep all this information organized is to create a spreadsheet (use Excel). That way you can graph out this information, and view it multiple ways(bar graph, line chart, etc.).



Create a balance sheet. If you are just starting a small business, it is important that you write out balance sheets, which include: assets, liabilities, and equity. Each of these three categories will help you keep track of the finances of your business, and make it easier to pay your bills.

Assets = current assets(cash, accounts receivable, notes receivable, inventory) + fixed assets(land, building, machinery, furniture, improvements) + intangibles(research, patents, charity, organizational expense)

Liabilities = current liabilities(accounts payable, accrued expenses, notes payable, current long-term debt) + non-current liabilities(non-current long-term debt, notes payable to shareholders and owners, contingent liabilities)

Equity = Assets - Liabilities



Develop a cash flow analysis. This measures money which goes in and out of your business. This is then broken down into operational activities, investment activities, and financing activities. This analysis will help you determine when you break even, and can start reinvesting/expanding your business. Once more, the best way to do this is to create a spread sheet. Find all of your financial statements and gather them together before you start to analyze.

Operational = net income, loses of business, sales, and business expenditures.

Investment = purchases and sales of property, assets, securities, and equipment.

Financing = cash flows of all your loan borrowing and repayment.







Borrowing Money for Your Business.



Use equity financing to start your business. Equity financing usually comes from a primary investor, or other business. They will provide you a sum of money, in exchange for part-ownership of your company. This is a good option because investors look further down the road than a loan company, and you will have more money on hand. However, the investors will naturally want to interfere, and change aspects of your business model.

There are networks online which can set you up with a primary investor.

You can also check out private equity firms, which contain a vast array of specialized and experienced investors.

Remember, that small business owners generally use very little equity financing. It all depends on your business model, and the potential for growth.



Start your business using debt financing. Debt financing is when you take out a loan, usually from a bank or lending institution. This is a great option because the bank will have no say in how you run your business. The loan is tax deductible, and you can get short-term or long-term loans. However, you must have the loan repaid in a certain amount of time, and if you don't, you could have a hard time getting capital investment.

Talk to your local bank, or lending institution about the qualifications for specific loans. You will probably have to fill out some paperwork to determine whether or not you are qualified.

When using a local bank, you may be able to set up a personal relationship. This way, you can postpone a few payments if you fall on hard times.



Find out about credit scores and ratings. The higher your score is, the less risky you are to investors. In many cases, the initial business loan will be based on the borrower's own personal credit score. However, in some cases where a business is already operational, a business plan and other documents can provide for a different kind of credit specifically for the continued operations of that enterprise.

Use the online company TransUnion or EquiFax to determine your credit score. It is important to get an independent analysis, otherwise your own calculated score could be biased.

The main focus of the score is how long you have maintained a credit line, and how many monthly payments you have made on time.

If you have no prior experience taking out credit, it may be hard to get a loan. It is best to start using a credit card on small things like gas, or grocery store trips. Then gradually build up. Show the creditors you are a responsible client.[12]



Maintain an adequate debt to equity ratio. You want to make sure that the total debt and liabilities of your business is no more than four times the equity in the business. Equity simply means any retained earnings and cash injections by investors. In order to start out with equity, the owner of the business usually has to put in anywhere from 20-40%. This will maintain an adequate debt to equity ratio, and allow you to get a loan.



Put up collateral to start your business. Before you get a loan, the lending institution or bank will ask for collateral. This means you risk some of the items you own. In the case you cannot repay the loan, the bank can seize your property. Collateral usually includes homes, cars, furniture, equipment, stocks, bonds, etc. this is a scary proposition, so you need to be sure that your business will be financially successful beforehand.



Shop around for different lenders. There are a variety of lenders who may or may not be willing to issue new business loans, and all of these potential lenders have their own terms and conditions. Talk to various lenders and ask them about what kinds of loans are available. Evaluate loans by timeline. Lenders will offer various short-term, long-term or revolving-credit loans to business owners. Look at which ones suit the needs of a startup the best.

Look at secured and unsecured business loans. Secured loans actually use existing assets as collateral. For example, the person trying to start a business can use his or her home, or other property, as collateral and get lower interest rates for the loan. However, this leaves the assets vulnerable to seizure in cases of nonpayment. Unsecured loans rest solely on the borrower's credit score. See which of these types of loans best matches desired risk.

Select the best deals. You want a loan that has the lowest interest rates and most favorable terms for repayment.









Financing Your Business.



Get a bank loan. Small, local banks have received more strict standards after the financial crash of 2008. However, large investment banks such as JP Morgan Chase and Bank of America have received a set of moneys from the Federal Reserve to lend out to small businesses. This is your best option to go with, although it takes the long to pay off. Local banks will set you up with a contract, and a monthly payment. The other benefit is that you can get this loan postponed if you are having trouble paying it off.



Place your home up as collateral. Banks will generally allow you to borrow up to 75-80% of your home's worth, as long as you have at least 10-15% already down on your home. This is great because the loan will have a much lower interest rate than a credit card. Talk with your financier, or local mortgage company for more detailed information.



Use your credit card. This is a very dangerous game to be played. You need to stay on top of your monthly payments. If you fall behind, you get trapped in a death spiral. However, when carefully managed, credit cards can be great to get out of an emergency. Only use a credit card occasionally, when you are experiencing a hole you know that you can get out of.



Tap into your 401(k) plan. You will need a financial expert who can start up a C Corporation which you can then roll your retirement assets into. This is also a risky business, because you are tapping into your nest egg. This should only be done if you have more money put away in a savings account, or if you are independently wealthy.



Try loaning money from your friends and family. Ask who would be willing to make a contribution, or purchase a percentage of the company. Go about asking members of your church for donations. Let local businesses to partner with you. You might make some acquaintances, and make some deals (you make cheese, they make wine, a chance to exchange).



Pledge your future earnings. Some companies, or peoples, are willing to gamble and put money upfront, if you are willing to commit a certain percentage of future profits. This is a gamble because they, and you, are betting that you will be able to earn enough in the future. There is usually a contract involved, guaranteeing that they will at least get some money back, so keep that in mind.



Kickstart your business. Crowd funding, in the age of the internet, has become a very popular way to finance businesses. Write a description of your business idea online, at sites like Kickstarter, and convince people to donate to your business. You will want to be really descriptive, and excited in your word choice. The downside of this is that it could take months or years before you raise enough money.



Secure an SBA loan. SBA (Small Business Administration) is a branch of the Federal Government that supplies loans to businesses struggling to get off the ground. However, there are a number of qualifications. You had to have been denied a loan from another bank before. You have to meet the government's definition of a small business. You will also have to meet other restrictions, depending on the type of SBA loan. Go to the SBA's website, and fill out a form if you think you might meet these qualifications.



Attract an angel investor. These are wealthy individuals who like to bet on the financial success of start-up businesses. Angel investors are usually found at private-equity, and venture capital firms. You will want to bring someone older, who looks like he has had experience in business before. Be passionate about your idea when you present, and know all of the financial details before you walk in the room. Keep in contact with the investor days and weeks after your initial meeting.





Tips.

Talk to numerous lending institutions before you pick a loan. Some will have better interest rates, while others will have better repayments.

Consult with family members first. Getting a small loan from them can avoid dealing with greedy credit lenders.

Get some experience in the business before you start your own. If you want to start a restaurant, make sure you have worked in a restaurant before. If not, you will wind up purchasing outside help which will cost you astronomical amounts of money.



Warnings.

Talk to a lawyer and a financial advisor to avoid colossal mistakes. The biggest regret of many first-time small business owners is not consulting with a professional before they begin the process.

If you are a person living paycheck-to-paycheck, it is best to wait to start a small business. If the business goes down hill quickly, you could lose your assets, and your life savings.

Take a year to save up money and make a detailed plan. You do not want to go into small business owning head first.

November 13, 2019

how to finance a business well

How to Finance a Business.

When it's time to finance a business, there can be substantial work involved to facilitate this step. Every small business is different, and businesses in different industries and sectors have different ways of going about getting credit. There are various costs which widely range over the span of particular sectors. However, for the core process of securing the financial assistance that a business owner needs for a start up, some basic guidelines and principles will help create effective programs and a solvent business model. Estimate the costs of doing business, find out what you need to borrow money, and then research your financing options.





Estimating Costs of Your Business.



Determine the one-time costs of your business. These are costs that will only occur at the very beginning of opening your business. These include mileage (getting to a location), market research, advertising, and training. You will also need to look up any fees which will occur, such as a lawyer or consultant fee.



Calculate the recurring costs of your business. These are costs that you will have to pay over and over again, usually on a weekly, bi-weekly, or monthly basis. These include costs of utilities, insurance, wages, etc. Recurring costs are generally larger than one-time costs, and span a length of 10-30 years depending on your financing options. Calculate not only the total cost over the lifespan of your business, but also that on a yearly, and bi-yearly basis.



Ascertain whether costs are fixed, or variable. Fixed costs are those which will not change. The cost of your utilities, or your administrative costs are all fixed. Variable costs are those which will change over time. This includes wages, insurance, and shipping/packaging costs. The best way to keep all this information organized is to create a spreadsheet (use Excel). That way you can graph out this information, and view it multiple ways(bar graph, line chart, etc.).



Create a balance sheet. If you are just starting a small business, it is important that you write out balance sheets, which include: assets, liabilities, and equity. Each of these three categories will help you keep track of the finances of your business, and make it easier to pay your bills.

Assets = current assets(cash, accounts receivable, notes receivable, inventory) + fixed assets(land, building, machinery, furniture, improvements) + intangibles(research, patents, charity, organizational expense)

Liabilities = current liabilities(accounts payable, accrued expenses, notes payable, current long-term debt) + non-current liabilities(non-current long-term debt, notes payable to shareholders and owners, contingent liabilities)

Equity = Assets - Liabilities



Develop a cash flow analysis. This measures money which goes in and out of your business. This is then broken down into operational activities, investment activities, and financing activities. This analysis will help you determine when you break even, and can start reinvesting/expanding your business. Once more, the best way to do this is to create a spread sheet. Find all of your financial statements and gather them together before you start to analyze.

Operational = net income, loses of business, sales, and business expenditures.

Investment = purchases and sales of property, assets, securities, and equipment.

Financing = cash flows of all your loan borrowing and repayment.







Borrowing Money for Your Business.



Use equity financing to start your business. Equity financing usually comes from a primary investor, or other business. They will provide you a sum of money, in exchange for part-ownership of your company. This is a good option because investors look further down the road than a loan company, and you will have more money on hand. However, the investors will naturally want to interfere, and change aspects of your business model.

There are networks online which can set you up with a primary investor.

You can also check out private equity firms, which contain a vast array of specialized and experienced investors.

Remember, that small business owners generally use very little equity financing. It all depends on your business model, and the potential for growth.



Start your business using debt financing. Debt financing is when you take out a loan, usually from a bank or lending institution. This is a great option because the bank will have no say in how you run your business. The loan is tax deductible, and you can get short-term or long-term loans. However, you must have the loan repaid in a certain amount of time, and if you don't, you could have a hard time getting capital investment.

Talk to your local bank, or lending institution about the qualifications for specific loans. You will probably have to fill out some paperwork to determine whether or not you are qualified.

When using a local bank, you may be able to set up a personal relationship. This way, you can postpone a few payments if you fall on hard times.



Find out about credit scores and ratings. The higher your score is, the less risky you are to investors. In many cases, the initial business loan will be based on the borrower's own personal credit score. However, in some cases where a business is already operational, a business plan and other documents can provide for a different kind of credit specifically for the continued operations of that enterprise.

Use the online company TransUnion or EquiFax to determine your credit score. It is important to get an independent analysis, otherwise your own calculated score could be biased.

The main focus of the score is how long you have maintained a credit line, and how many monthly payments you have made on time.

If you have no prior experience taking out credit, it may be hard to get a loan. It is best to start using a credit card on small things like gas, or grocery store trips. Then gradually build up. Show the creditors you are a responsible client.[12]



Maintain an adequate debt to equity ratio. You want to make sure that the total debt and liabilities of your business is no more than four times the equity in the business. Equity simply means any retained earnings and cash injections by investors. In order to start out with equity, the owner of the business usually has to put in anywhere from 20-40%. This will maintain an adequate debt to equity ratio, and allow you to get a loan.



Put up collateral to start your business. Before you get a loan, the lending institution or bank will ask for collateral. This means you risk some of the items you own. In the case you cannot repay the loan, the bank can seize your property. Collateral usually includes homes, cars, furniture, equipment, stocks, bonds, etc. this is a scary proposition, so you need to be sure that your business will be financially successful beforehand.



Shop around for different lenders. There are a variety of lenders who may or may not be willing to issue new business loans, and all of these potential lenders have their own terms and conditions. Talk to various lenders and ask them about what kinds of loans are available. Evaluate loans by timeline. Lenders will offer various short-term, long-term or revolving-credit loans to business owners. Look at which ones suit the needs of a startup the best.

Look at secured and unsecured business loans. Secured loans actually use existing assets as collateral. For example, the person trying to start a business can use his or her home, or other property, as collateral and get lower interest rates for the loan. However, this leaves the assets vulnerable to seizure in cases of nonpayment. Unsecured loans rest solely on the borrower's credit score. See which of these types of loans best matches desired risk.

Select the best deals. You want a loan that has the lowest interest rates and most favorable terms for repayment.









Financing Your Business.



Get a bank loan. Small, local banks have received more strict standards after the financial crash of 2008. However, large investment banks such as JP Morgan Chase and Bank of America have received a set of moneys from the Federal Reserve to lend out to small businesses. This is your best option to go with, although it takes the long to pay off. Local banks will set you up with a contract, and a monthly payment. The other benefit is that you can get this loan postponed if you are having trouble paying it off.



Place your home up as collateral. Banks will generally allow you to borrow up to 75-80% of your home's worth, as long as you have at least 10-15% already down on your home. This is great because the loan will have a much lower interest rate than a credit card. Talk with your financier, or local mortgage company for more detailed information.



Use your credit card. This is a very dangerous game to be played. You need to stay on top of your monthly payments. If you fall behind, you get trapped in a death spiral. However, when carefully managed, credit cards can be great to get out of an emergency. Only use a credit card occasionally, when you are experiencing a hole you know that you can get out of.



Tap into your 401(k) plan. You will need a financial expert who can start up a C Corporation which you can then roll your retirement assets into. This is also a risky business, because you are tapping into your nest egg. This should only be done if you have more money put away in a savings account, or if you are independently wealthy.



Try loaning money from your friends and family. Ask who would be willing to make a contribution, or purchase a percentage of the company. Go about asking members of your church for donations. Let local businesses to partner with you. You might make some acquaintances, and make some deals (you make cheese, they make wine, a chance to exchange).



Pledge your future earnings. Some companies, or peoples, are willing to gamble and put money upfront, if you are willing to commit a certain percentage of future profits. This is a gamble because they, and you, are betting that you will be able to earn enough in the future. There is usually a contract involved, guaranteeing that they will at least get some money back, so keep that in mind.



Kickstart your business. Crowd funding, in the age of the internet, has become a very popular way to finance businesses. Write a description of your business idea online, at sites like Kickstarter, and convince people to donate to your business. You will want to be really descriptive, and excited in your word choice. The downside of this is that it could take months or years before you raise enough money.



Secure an SBA loan. SBA (Small Business Administration) is a branch of the Federal Government that supplies loans to businesses struggling to get off the ground. However, there are a number of qualifications. You had to have been denied a loan from another bank before. You have to meet the government's definition of a small business. You will also have to meet other restrictions, depending on the type of SBA loan. Go to the SBA's website, and fill out a form if you think you might meet these qualifications.



Attract an angel investor. These are wealthy individuals who like to bet on the financial success of start-up businesses. Angel investors are usually found at private-equity, and venture capital firms. You will want to bring someone older, who looks like he has had experience in business before. Be passionate about your idea when you present, and know all of the financial details before you walk in the room. Keep in contact with the investor days and weeks after your initial meeting.





Tips.

Talk to numerous lending institutions before you pick a loan. Some will have better interest rates, while others will have better repayments.

Consult with family members first. Getting a small loan from them can avoid dealing with greedy credit lenders.

Get some experience in the business before you start your own. If you want to start a restaurant, make sure you have worked in a restaurant before. If not, you will wind up purchasing outside help which will cost you astronomical amounts of money.



Warnings.

Talk to a lawyer and a financial advisor to avoid colossal mistakes. The biggest regret of many first-time small business owners is not consulting with a professional before they begin the process.

If you are a person living paycheck-to-paycheck, it is best to wait to start a small business. If the business goes down hill quickly, you could lose your assets, and your life savings.

Take a year to save up money and make a detailed plan. You do not want to go into small business owning head first.

November 12, 2019

how to split expenses as a couple

How to Split Expenses As a Couple.

Splitting expenses as a couple is an important aspect of having a stable relationship, especially if you’re living together. There are several ways to split expenses. One way is to split everything right down the middle, so each person pays half. The other way is for each person to pay for what they can afford. The final way is for one person to pay all or most of the expenses. If one of you works little or not at all, that person should make up the difference by contributing energy toward domestic tasks. Finally, ensure you’re covering yourself by keeping separate bank accounts and not cosigning loans with your partner.



Method 1 Choosing the Right Method.

1. Determine what expenses qualify as shared. Sometimes it is easy to identify a shared expense. For instance, heating, water, and electricity are house-wide expenses and you will both, presumably, enjoy their use in approximately equal amounts. But it might be harder to justify sharing other expenses. If you have TV service at your home, for instance, but only one of you watches TV, it makes little sense to split that particular expense.

Talk to your partner about which expenditures they believe should be considered shared and which should be considered individual expenses.

2. Split expenses evenly. By splitting every expense evenly, you and your partner have a form of equality in the relationship. This is probably the most logical way to split expenses for couples who have equal or roughly equal incomes.

There are many ways to split expenses 50/50. You might choose to split each expense as it comes in. Alternately, you might reconcile receipts at the end of each month and pay your partner whatever is “owed.” Talk to your partner about which method works best for you.

You don’t need to split everything perfectly evenly. Creating a spreadsheet to track expenses, or otherwise accounting for every penny spent between you can reduce your relationship to a purely economic exchange that takes the romance out of it. Even if you split household bills, it’s still okay to treat your significant other to dinner or a date when you go out.

For instance, you might take turns paying for dinner. Even if your dinners don’t total the exact same amount each time you go out to eat, over time, you’ll each probably end paying about the same amount. This qualifies as a form of splitting costs evenly.

3. Split your expenses according to income. This expense-splitting technique calls for the person with the higher income paying for a larger share of the household expenses. In other words, equality is achieved through each person in the relationship paying expenses according to their ability.

For example, suppose you earn $3,000 per month and your partner earns $2,000 each month. In this case, you should pay for 60% of the expenses, since your income is 60% of the total household income (the figure you get when you combine the incomes of you and your partner).

Talk carefully with your partner to make sure that there are no hidden issues before going forward with this method. In some cases, your partner may feel as though they are contributing too much or too little if this method is used.

4. Share expenses unevenly. In this method, one person will pay for the majority of household expenses. This is the natural choice to make when one person in the relationship has way more income than the other person. However, if both you and your partner make a lot of money, either of you could choose to take on an expense-splitting arrangement like this.

A fair arrangement doesn’t necessarily need to divide all expenses perfectly. For instance, one of you could take the internet bill while the other takes the power bill. Divide things up according to whichever scheme suits your situation.

5. Be willing to trade time and money. If you work and your partner doesn’t or if your partner works but you do not, there are other ways you can come to a fair arrangement by thinking about the work (as well as the money) it takes to run a household. Domestic work – cleaning, cooking, and doing the laundry – is crucial to keeping a household going. It makes little sense for one person to both complete all these tasks and also provide financial stability for you as a couple.

Think about splitting the total amount of work that each of you do as a couple rather than thinking of splitting expenses along purely financial lines.



Method 2 Splitting Food Expenses.

1. Figure out your food budget. Your food budget is the total you spend on food over a given period. To get an accurate picture of how much you spend on food, track your expenses over a certain period of time. Tracking over a month is a good unit of time, since depending on how much you and your partner eat, you might not spend much on food.

Use a shared spreadsheet in Google Doc or another program to track your expenditures. Your document should indicate each item you bought and how much it cost.

Alternatively, try a low-tech route like writing your grocery and dining-out expenses on a piece of lined paper.

Keep your receipts while tracking your food budget.

2. Analyze the budget. Once you’ve figured out your food budget, evaluate the information with your partner. Are you spending too much, too little, or just the right amount? Look for areas where you can cut expenses.

For instance, instead of spending so much on junk food and snacks, try to find healthy alternatives like fruit or veggies and hummus.

Instead of eating out so much, try eating at home more often. Make cooking together a couple's activity.

Eliminate or reduce your alcohol consumption for more savings.

3. Decide how to split the food expenditures. You can use an income-based method to choose how to split the food expenses, or split the food expenses according to consumption patterns. Whatever method you choose, ensure you and your partner agree on how much money you should be spending on food, and ensure you both set aside money each month for your grocery budget.

Let go of small differences in food consumption. Even if your partner eats more than you, constantly analyzing how much money each person owes for food can put a strain on the relationship.



Method 3 Being Smart About Shared Finances.

1. Plan for emergencies. Both you and your partner should have money saved in the event that one or both of you needs to pay for surgery, a new vehicle, or another large expense. Try to set aside at least 25% of your monthly income for savings.

You should have at least six months’ worth of income saved to cover periods of potential unemployment.

Be sure to set beneficiaries on your retirement and insurance plans, too.

If you separate from your partner, don’t forget to change your beneficiary list.

2. Have regular financial checkups. Every month or two, you and your partner should have a conversation about where you’re both at financially. Are you still both increasing your savings? Do you have enough saved to cover an emergency? Are you both still comfortable with the way expenses are being shared? Talk to your partner about these and other related issues.

Make budgeting and financial planning an activity you do together. This can be more successful or even exciting if you are both working towards a common goal, such as a vacation or purchasing a home.

Always be honest about your finances. If you are struggling financially, you should admit to your partner that you’re having money problems. That way they can help you out by either loaning you money, helping you find another job, or taking other action that can help.

Encourage your partner to be honest with you about their spending habits and their happiness with your current financial arrangement. If your partner lies about money matters, you should seriously consider ending the relationship.

Don’t let your partner push you into a purchase you can’t really afford. For instance, if you can’t afford a new car but your partner really wants you to have one, stand firm and insist that you will not make such a purchase. If they love you, they will respect your decision.

3. Do not move in with your significant other for financial reasons. Living with someone else and sharing expenses does save money, but if you make the decision to shack up based on the potential economic benefit, your relationship will be on an unstable foundation. Only move in together if you’re truly in love with the person and ready to be in close proximity to them night and day. This will make splitting finances just one part of your relationship, and not its entire basis.

4. Avoid borrowing money. Not only is it annoying for your partner, but it might make them suspicious of your financial health and question your intentions. It’s okay to borrow money in an emergency situation, but don’t make a regular habit of it.

If your partner regularly asks to borrow money, you should inquire as to why they constantly need money. They may have lost their job or have unpaid debts you don’t know about.

5. Avoid sharing debts. Cosigning a loan for your partner is never a good idea. The last thing you want to do is end up saddled with debt that you did not personally incur. Only make a large investment with your partner like a house or car if you are in a stable, long-term relationship.

You should ask your partner about any debts or liabilities that they may hold. Be honest about your own debt as well. Keeping these secret can ruin a relationship when the debt is discovered by the other partner.

Always put both your names on the lease, mortgage, or loan. This will allow you some degree of protection in the event you and your partner separate.

For mortgages, consult a real-estate attorney to help you figure out the best way to negotiate your local real estate laws as they relate to your relationship. A married couple has different options for taking out a home loan than an unmarried couple.

For auto loans, too, you (and your partner) should talk to a financial officer at your local bank or credit union. There are many variables that could impact whether you and your partner decide to take out an individual loan or cosign the loan. Seek advice relevant to your living situation in order to get the lowest interest rates and avoid shared debt.

6. Do not share assets. Assets are valuable possessions or investments. Common assets include bank accounts as well as big-ticket items. Typical material assets include houses, cars, and boats. These items should never be purchased using both your names. Otherwise, you might end up wrangling over ownership in the event you separate.

Bank accounts, likewise, should never be shared between you and your partner. These accounts can be a source of tension should one partner decide to use the money for themselves.

If you want to set up a shared account with your partner – for instance, an account either of you can use to pay bills – keep it completely separate from your personal account. Put a small amount of money in it each month along with your partner, and use it only to pay the bills you intended it for.

February 25, 2020

How to Split Expenses As a Couple.

How to Split Expenses As a Couple.

Splitting expenses as a couple is an important aspect of having a stable relationship, especially if you’re living together. There are several ways to split expenses. One way is to split everything right down the middle, so each person pays half. The other way is for each person to pay for what they can afford. The final way is for one person to pay all or most of the expenses. If one of you works little or not at all, that person should make up the difference by contributing energy toward domestic tasks. Finally, ensure you’re covering yourself by keeping separate bank accounts and not cosigning loans with your partner.



Method 1 Choosing the Right Method.

1. Determine what expenses qualify as shared. Sometimes it is easy to identify a shared expense. For instance, heating, water, and electricity are house-wide expenses and you will both, presumably, enjoy their use in approximately equal amounts. But it might be harder to justify sharing other expenses. If you have TV service at your home, for instance, but only one of you watches TV, it makes little sense to split that particular expense.

Talk to your partner about which expenditures they believe should be considered shared and which should be considered individual expenses.

2. Split expenses evenly. By splitting every expense evenly, you and your partner have a form of equality in the relationship. This is probably the most logical way to split expenses for couples who have equal or roughly equal incomes.

There are many ways to split expenses 50/50. You might choose to split each expense as it comes in. Alternately, you might reconcile receipts at the end of each month and pay your partner whatever is “owed.” Talk to your partner about which method works best for you.

You don’t need to split everything perfectly evenly. Creating a spreadsheet to track expenses, or otherwise accounting for every penny spent between you can reduce your relationship to a purely economic exchange that takes the romance out of it. Even if you split household bills, it’s still okay to treat your significant other to dinner or a date when you go out.

For instance, you might take turns paying for dinner. Even if your dinners don’t total the exact same amount each time you go out to eat, over time, you’ll each probably end paying about the same amount. This qualifies as a form of splitting costs evenly.

3. Split your expenses according to income. This expense-splitting technique calls for the person with the higher income paying for a larger share of the household expenses. In other words, equality is achieved through each person in the relationship paying expenses according to their ability.

For example, suppose you earn $3,000 per month and your partner earns $2,000 each month. In this case, you should pay for 60% of the expenses, since your income is 60% of the total household income (the figure you get when you combine the incomes of you and your partner).

Talk carefully with your partner to make sure that there are no hidden issues before going forward with this method. In some cases, your partner may feel as though they are contributing too much or too little if this method is used.

4. Share expenses unevenly. In this method, one person will pay for the majority of household expenses. This is the natural choice to make when one person in the relationship has way more income than the other person. However, if both you and your partner make a lot of money, either of you could choose to take on an expense-splitting arrangement like this.

A fair arrangement doesn’t necessarily need to divide all expenses perfectly. For instance, one of you could take the internet bill while the other takes the power bill. Divide things up according to whichever scheme suits your situation.

5. Be willing to trade time and money. If you work and your partner doesn’t or if your partner works but you do not, there are other ways you can come to a fair arrangement by thinking about the work (as well as the money) it takes to run a household. Domestic work – cleaning, cooking, and doing the laundry – is crucial to keeping a household going. It makes little sense for one person to both complete all these tasks and also provide financial stability for you as a couple.

Think about splitting the total amount of work that each of you do as a couple rather than thinking of splitting expenses along purely financial lines.



Method 2 Splitting Food Expenses.

1. Figure out your food budget. Your food budget is the total you spend on food over a given period. To get an accurate picture of how much you spend on food, track your expenses over a certain period of time. Tracking over a month is a good unit of time, since depending on how much you and your partner eat, you might not spend much on food.

Use a shared spreadsheet in Google Doc or another program to track your expenditures. Your document should indicate each item you bought and how much it cost.

Alternatively, try a low-tech route like writing your grocery and dining-out expenses on a piece of lined paper.

Keep your receipts while tracking your food budget.

2. Analyze the budget. Once you’ve figured out your food budget, evaluate the information with your partner. Are you spending too much, too little, or just the right amount? Look for areas where you can cut expenses.

For instance, instead of spending so much on junk food and snacks, try to find healthy alternatives like fruit or veggies and hummus.

Instead of eating out so much, try eating at home more often. Make cooking together a couple's activity.

Eliminate or reduce your alcohol consumption for more savings.

3. Decide how to split the food expenditures. You can use an income-based method to choose how to split the food expenses, or split the food expenses according to consumption patterns. Whatever method you choose, ensure you and your partner agree on how much money you should be spending on food, and ensure you both set aside money each month for your grocery budget.

Let go of small differences in food consumption. Even if your partner eats more than you, constantly analyzing how much money each person owes for food can put a strain on the relationship.



Method 3 Being Smart About Shared Finances.

1. Plan for emergencies. Both you and your partner should have money saved in the event that one or both of you needs to pay for surgery, a new vehicle, or another large expense. Try to set aside at least 25% of your monthly income for savings.

You should have at least six months’ worth of income saved to cover periods of potential unemployment.

Be sure to set beneficiaries on your retirement and insurance plans, too.

If you separate from your partner, don’t forget to change your beneficiary list.

2. Have regular financial checkups. Every month or two, you and your partner should have a conversation about where you’re both at financially. Are you still both increasing your savings? Do you have enough saved to cover an emergency? Are you both still comfortable with the way expenses are being shared? Talk to your partner about these and other related issues.

Make budgeting and financial planning an activity you do together. This can be more successful or even exciting if you are both working towards a common goal, such as a vacation or purchasing a home.

Always be honest about your finances. If you are struggling financially, you should admit to your partner that you’re having money problems. That way they can help you out by either loaning you money, helping you find another job, or taking other action that can help.

Encourage your partner to be honest with you about their spending habits and their happiness with your current financial arrangement. If your partner lies about money matters, you should seriously consider ending the relationship.

Don’t let your partner push you into a purchase you can’t really afford. For instance, if you can’t afford a new car but your partner really wants you to have one, stand firm and insist that you will not make such a purchase. If they love you, they will respect your decision.

3. Do not move in with your significant other for financial reasons. Living with someone else and sharing expenses does save money, but if you make the decision to shack up based on the potential economic benefit, your relationship will be on an unstable foundation. Only move in together if you’re truly in love with the person and ready to be in close proximity to them night and day. This will make splitting finances just one part of your relationship, and not its entire basis.

4. Avoid borrowing money. Not only is it annoying for your partner, but it might make them suspicious of your financial health and question your intentions. It’s okay to borrow money in an emergency situation, but don’t make a regular habit of it.

If your partner regularly asks to borrow money, you should inquire as to why they constantly need money. They may have lost their job or have unpaid debts you don’t know about.

5. Avoid sharing debts. Cosigning a loan for your partner is never a good idea. The last thing you want to do is end up saddled with debt that you did not personally incur. Only make a large investment with your partner like a house or car if you are in a stable, long-term relationship.

You should ask your partner about any debts or liabilities that they may hold. Be honest about your own debt as well. Keeping these secret can ruin a relationship when the debt is discovered by the other partner.

Always put both your names on the lease, mortgage, or loan. This will allow you some degree of protection in the event you and your partner separate.

For mortgages, consult a real-estate attorney to help you figure out the best way to negotiate your local real estate laws as they relate to your relationship. A married couple has different options for taking out a home loan than an unmarried couple.

For auto loans, too, you (and your partner) should talk to a financial officer at your local bank or credit union. There are many variables that could impact whether you and your partner decide to take out an individual loan or cosign the loan. Seek advice relevant to your living situation in order to get the lowest interest rates and avoid shared debt.

6. Do not share assets. Assets are valuable possessions or investments. Common assets include bank accounts as well as big-ticket items. Typical material assets include houses, cars, and boats. These items should never be purchased using both your names. Otherwise, you might end up wrangling over ownership in the event you separate.

Bank accounts, likewise, should never be shared between you and your partner. These accounts can be a source of tension should one partner decide to use the money for themselves.

If you want to set up a shared account with your partner – for instance, an account either of you can use to pay bills – keep it completely separate from your personal account. Put a small amount of money in it each month along with your partner, and use it only to pay the bills you intended it for.

February 25, 2020