How to budget wisely in bank holiday season: Sarah Coles

It always kicks off with the central heating, which I still contend has no place being fired up at this time of year. It then circles through every poor financial decision either of us has ever made, and finishes up with us agreeing to go through a household budget together – thereby ensuring the row can be enjoyed for a second day.

Actually, the annual joint budgeting process tends to be far more agreeable, and is something I would wholeheartedly recommend to anyone who shares aspects of their finances with another person. Some couples will get stuck in over Christmas, but this seems like a recipe for disagreement at a time when everyone’s finances are on a knife edge, and you’ve been stuck in the house together for days watching The Great Escape.

Bank Holiday season is a decent time to schedule it, because you have the time, and with any luck, your finances are under less pressure. It’s a brilliant opportunity to take stock of what you’re spending, and ensure that things are divided fairly between you. But to make the most of it, it’s worth doing some sensible preparation.

Work out what you spend on everything

Even if you’re only discussing joint bills and expenses, to understand what you can afford, you need to know what you’re spending on everything else too. It can be worth using an online budget calculator and your banking app to jog your memory as to where all your money is going. If you tend to spend in cash, you may need to take an old school approach and keep a spending diary for a few weeks.

Consider what you think is a fair split

You need clarity on what you and your partner earn, and then you need to reach an understanding as to what is a fair split of the bills. Every couple has a different solution. Some will split it 50:50. Others will tend to split it along the lines of their earnings, so if one of you is bringing in 70% of the income, they’ll pay 70% of the bills. Before you start this conversation, you need to consider what you believe is fundamentally fair, and what you can live with.

Work out the total cost of the bills

Some couples will fall into a pattern where one will pick up the gas bill and another will cover the broadband and they’ll consider it roughly fair. However, it’s a really easy way to lose track, because as bills rise and fall, you could end up carrying more than your fair share. It makes far more sense to work out a fair split of the bills, how much those bills actually cost, and then pay your share.

Set up a mutually convenient time to talk it through

Once you know where you stand, find time to go through it together and reach a compromise that works for both of you. If one of you tends to be more dominant and the other is a people-pleaser, leave that at the door. You both need to be comfortable with the split – emotionally and financially.

Don’t leave yourself short

During this conversation, you will need to make compromises, but don’t leave yourself short. If you have agreed to a split that leaves money tight, you could end up sacrificing vital things like saving or investing into a pension. If you think dividing income while you’re earning is difficult, you should try doing it when one of you has significantly undersaved for retirement, and can’t afford anything like their share of the bills. It’s far better to have a difficult conversation that leaves you stronger financially than to have an easy conversation that means you’ll struggle later.

Work out the practicalities of the split

Some couples will have a joint account for everything. Others see this as an opportunity for endless rows, and prefer to keep things separate. Many couples will have a separate bills account which they both pay into, and which is only ever used to pay bills. It’s a simple way to divide things fairly, and a decent halfway house.

Set up a date to revisit this

Bills will rise, and hopefully pay will too. You may also want to agree on additional joint expenses, like new streaming services. Put something in the diary, so you can go back over your expenses and check everything is working for you.

This isn’t guaranteed to be a straightforward process. There will be couples with very different incomes who decide to divide things 50:50, and will both need to be comfortable with the fact that one of them will have a considerably better lifestyle than the other. Similarly, in couples where one earns significantly more, and pays for the lion’s share, they need to be happy with the lifestyle they can afford as a result – especially if this means saying no to opportunities with friends on similar incomes. There’s no right or wrong answer to how to split the bills, but there is definitely a right and wrong answer for you – and you need to be clear on this before you start what’s likely to be a fairly thorny conversation.

Should you sell in May and go away?

’Sell in May and go away, don’t come back until St Leger’s Day’ is a bizarre investment adage, but you still hear it occasionally. The theory behind the idea stems from the time when rich people traded on the floor of the stock exchange, and took the summer off. They came back after the last major horse racing meet of the year, the St Leger’s Stakes, which usually took place around the middle of September.

The idea was that there wasn’t much trading activity over the summer months, and returns were lacklustre at best. Of course, things have changed dramatically since then, so we ran the numbers to see whether the adage was still useful.

We looked at the FTSE All Share index for the last 20 years, and found that if you’d stayed invested from May to September, you’d have lost money in six of those years – in two of them you’d have lost more than 10%. However, it was impossible to spot this in advance, so if you’re going to adopt the strategy of selling in May, you need to do it consistently.

Let’s assume you invested in October 20 years ago, but took your money out in April every year and put it back in during October. You’d currently have £3,526, which isn’t bad. However, if you’d left it invested for the summer as well, it would be worth £4,024.

It means the old adage has run its course, and over the long term, investors would be better off staying invested for the summer. Even if you decide to take the summer off, there’s no need for your investments to.

SARAH COLESHead of Personal Finance and Podcast Host for Switch Your Money OnHeadline Money Expert of the YearHargreaves Lansdown