How to manage expenses with roommates
You're making (or made) the big move and settling in an apartment or house with roommates. Chances are you’ll save money by sharing the rent and other expenses. But living with roommates can have it’s downsides if you aren’t proactive about how you’ll manage your joint expenses.
Fortunately, if you make your expectations clear about handling rent, utilities, and other cost-sharing, living with roommates can be stress-free and help you get ahead financially. Below are some tips to do just that.
Consider the lease
The first financial commitment you'll make to your roommates will be the lease. There are two ways to approach signing a lease with roommates. First, you could have your name on the lease and have your roommates pay their rent to you. This strategy gives you more control over who lives with you, but you'll be responsible for the entire rent— even if they don't pay you.
Alternatively, you can opt to have all of the roommates' names on the lease, and each individual will make their rental payments directly to the landlord. This approach is less risky to you, but you also might not have a say in who moves in and out.
Decide how to handle utilities
If your lease doesn't include utilities like electricity, water, heat, and internet, you'll need to decide how to handle these monthly expenses with your roommates. Since missing payments on these types of utilities can negatively impact your credit, splitting up who is responsible for paying each bill is smart. That way, if something happens and one of your roommates fails to pay their share, you can still make your payments and avoid a hit to your credit score. In addition, you can use an app like Billr or IOU to keep track of these expenses. These apps keep track of each bill and maintain a running tally of who owes who what.
If you don't want to use an app, you can always start a group chat specifically for living expenses and use that to keep track of bills and payments. For example, you can use a group chat to share photos of bills as they are received, which creates transparency and makes sure everyone is on the same page.
Ground rules for groceries
While utilities and rent are easy to split equally among your roommates, splitting groceries is like splitting the tab at a restaurant—you have options. Will you split grocery costs equally, or will each tenant buy their own? What about communal meals or shared staples like butter and milk? You'll need to sit down with your roommates and decide how you'll split grocery costs—don't just assume everyone is on the same page. If you want to diligently track who owes who, use an app like Splitwise. This app lets you maintain a running total of shared expense balances and integrates with PayPal and Venmo to make payments a breeze.
Roommate agreements: Are they worth it?
Finally, if you're new to living with roommates or have had bad experiences with roommates, consider completing a roommate agreement. A roommate agreement outlines the rules you and your roommates agree to follow before moving in together. It also clearly outlines who is responsible for rent, utilities, and shared expenses like groceries and cleaning supplies.
Roommate agreements can also lay out specifics like who gets which room, how the common spaces are to be treated, quiet hours, and what your remedies might be if someone doesn't hold up their end of the agreement. You can write a contract or use one of the downloadable templates like this one or this one.
Remember, it's better to have a roommate agreement and not need one than to need one and not have one. If you find yourself in a position of having to evict your roommate, your first step is to communicate this, with the appropriate notice, to your roommate. If they don't leave within the specified time in the roommate agreement, you may need to start an eviction lawsuit. One exception to this is if you are the victim of domestic violence. In that case, you have more options. If you want to evict your roommate, it's a good idea to read up on your local state laws to ensure you are taking the appropriate legal steps.
Housing costs have risen significantly in the past few years, and living with a roommate can be an excellent way to offset these costs. The key to living peacefully with roommates is setting expectations and finding ways to keep communication lines open (for example, through apps or group chats). If you follow these steps, you set yourself up to live with roommates peacefully and use more of your hard-earned money to reach your financial goals.