Should I pay off debt or save first?

Clear debt charging more than about 10% APR before saving beyond a small buffer, because clearing a debt at 25% APR is a guaranteed 25% return that no savings account matches. Below that rate, a starter emergency fund and your employer pension match come first, then the remaining debt.

How big should my emergency fund be?

Start with one to three months of essential outgoings, then build towards three to twelve months once your expensive debt is gone and you are claiming your pension match. Two stable incomes need less, around three months; self-employed or irregular income needs more, around nine to twelve months.

Why does the employer pension match come before paying off debt?

An employer match is often a 100% return on your contribution, immediately and with no risk. That beats the interest saved on almost any debt, so it is claimed before the cheaper debts are cleared. Expensive debt above roughly 10% APR is the exception and is dealt with earlier.

Should I save in cash or invest?

It depends on when you need the money. Under five years, keep it in cash: investments can fall for years and may not recover in time. Five years or more, investing through a pension, stocks and shares ISA or Lifetime ISA has historically beaten cash comfortably.

Is a Lifetime ISA worth it for a first home?

For most first-time buyers, yes. The government adds a 25% bonus on up to £4,000 a year, turning £4,000 into £5,000. You must be 18 to 39 to open one, the property must cost £450,000 or less, and the account must be open at least 12 months before you buy. Withdrawing for anything else before age 60 costs a 25% charge, which takes back more than the bonus.

Where can I get free help with debt?

StepChange, National Debtline and Citizens Advice all give free debt advice, and MoneyHelper offers free impartial money guidance. Never pay a company for debt advice, as the free charities offer the same help and more.

Where Should I Put My Money?

Answer a few questions to find the one thing worth doing next with your money, based on the UK Personal Finance flowchart.

Question 1 of 8

Can you cover your essential bills each month without borrowing?

Essentials means rent or mortgage, council tax, energy, food, and getting to work.

The full order of operations

Budget and clear expensive debt
Cover your essential bills, then clear anything charging more than about 10% APR.
Starter emergency fund
Put aside one to three months of essential outgoings in cash you can reach quickly.
Take the employer pension match
Contribute enough to claim every penny your employer will match.
Deal with remaining debt
Schedule the cheaper debts, paying the highest interest rate first.
Finish the emergency fund
Build to three to twelve months of outgoings, depending on how stable your income is.
Set your goals
Write down what you are saving for, how much it needs, and by when.
Short-term goals (under five years)
Keep money you will need soon in cash, not investments.
Long-term goals (five years or more)
Invest through tax-efficient accounts in low-cost, broadly diversified funds.

Source and licence

This tool follows the order of operations set out in the UK Personal Finance flowchart (version 3.0.10), maintained by the ukpersonal.finance community. The original is a diagram; this version asks you a question at each step instead, so you are told which step applies to you.

The original flowchart is published under the Creative Commons Attribution-NonCommercial-ShareAlike 4.0 licence, and this adaptation is shared under the same terms. Always check the original for the definitive version.

This is not financial advice. It is general guidance that suits most people most of the time, and it cannot account for your own circumstances. For free impartial help, contact MoneyHelper; for debt, contact StepChange, National Debtline or Citizens Advice, none of which charge. For advice on your own situation, speak to a regulated financial adviser.

Where Should I Put My Money?

Can you cover your essential bills each month without borrowing?

The full order of operations

Budget and clear expensive debt

Starter emergency fund

Take the employer pension match

Deal with remaining debt

Finish the emergency fund

Set your goals

Short-term goals (under five years)

Long-term goals (five years or more)

Source and licence