Sharing expenses with roommates? Here's how to make it work

By Tony Armstrong/NerdWallet

Andrew Olsen currently lives with his roommates in financial harmony, but things haven't always been so pleasant.

Olsen, a communications professional in Portland, Oregon, used to run into "bad seeds who would coast off of our goodwill." Some former roommates failed to cover their share of house expenses, he says, forcing him to pay extra.

But that's all in the past. Olsen and his roommates now hold each person accountable for bills and other expenses. They vet potential new roommates, have monthly meetings about shared expenses and use apps such as PayPal, Square Cash and Venmo to pay one another back.

Creating this type of system helps ensure good financial ties between the people you live with — and certain tools let you put your system into practice.

Use payment apps

Peer-to-peer payment apps — including PayPal, Square Cash and Venmo — make it easy to repay roommates. Olsen relies on Venmo, as does Alma Cook, a singer and copy editor who lives with roommates in Los Angeles.

If one person ends up owing another a few bucks, Cook and her roommates know they can make those payments with their smartphones.

"I like Venmo's interface," Cook says. "I've never had a problem sending or receiving money."

Getting organized can help P2P apps work for you.

"The first year living here, utilities and other expenses were a nightmare," Cook says. "No one really knew how much we owed each other for everything." Last year, the roommates drew up a spreadsheet that divided the bills and kept everyone informed. This system, paired with P2P payment apps, ensures everyone is on the same page.

For those who want to go beyond spreadsheets, the free app Splitwise can help keep track of shared expenses. Roommates can't transfer each other money using the app, but it does maintain a running total of how much each person owes and to whom. It can also send email reminders when payments are overdue.

Try mobile banking

Mobile banking makes it easy to upload checks and monitor your checking account. That way, you'll know the money your roommates sent you via P2P apps was actually deposited.

Mobile banking is a handy resource in general. Text and email alerts can curb losses if you've been hit by fraud, and automatic bill pay can reduce your risk of being charged a late fee. And if you're a customer at one of the country's big financial institutions, chances are good that you have access to Zelle, a new money transfer service that's integrated into a growing numbers of banks' mobile apps. Funds are transferred within minutes if the recipient's bank or credit union also uses Zelle — much faster than with Venmo.

Skip the joint checking account

They're a good option for couples and spouses, but joint checking accounts are risky for roommates. If one person regularly incurs fees, for instance, everyone is on the hook to pay them.

Partly for that reason, Olsen says he hasn't considered opening one with his roommates. He also points to the many P2P payment apps that make it easy to transfer cash. Plus, he and his roommates use different banks, and they don't want to bother opening a joint account under the same roof.

Knowing which tools to avoid is just as beneficial to your financial health as knowing which ones to use. In most cases, opening a joint checking account with roommates won't be the safest bet.

Remember, communication and trust are key

Outside of using tech tools to pay one another back, Olsen and his roommates discuss outstanding bills or payments at their monthly meetings. Any payment that's overdue by more than two months is cause for eviction, he says.

This kind of system is crucial, and writing the rules down is even better.

"Shared finances are like running a business," says Chad Smith, a certified financial planner and wealth management strategist based just outside of Dallas. "Businesses have procedures and financial ledgers. Having things in writing is a best practice."