I see the advice for managing finances in the US talking about financing a pension up to employer match, then do the next thing, then the next and so on. However, I'm in the UK, and I'd quite like a guideline like that.

I have an ISA, which I put into as much as I comfortably can, while saving for a large purchase over a short term as well, and I'm in a bit of an odd situation (which should probably be ignored for the purposes of this question), which means that I'm not paying into my pension. But what about bonds? Or stocks and shares? At what stage should I be looking at those? As requested in comments, I'm 20, and on the 3rd year of my 4 year degree, but halfway through a years placement. However, feel free to ignore any part of that if you have a good answer that would answer for a 20something working person.

My understanding of what you should do with your salary after essentials have been paid is:

  1. Pay debts off (At whatever speed makes sense to your situation)
  2. Match employer contribution to pension or up to whatever rule of thumb that you're using
  3. Pay into ISA up to the limit (As it's tax free, and likely to be the best interest rate that you can get)
  4. Max out pension contribution to the limit
  5. Bonds? I have no idea from here onwards
  • How old are you ? That is very important too.
    – DumbCoder
    Jan 6, 2015 at 14:22
  • @DumbCoder Added, but feel free to ignore that if you like, and have a good answer brewing
    – Yann
    Jan 6, 2015 at 14:25

1 Answer 1


This is a bit of an open-ended answer as certain assumptions must be covered. Hope it helps though.

My concern is that you have 1 year of university left - is there a chance that this money will be needed to fund this year of uni? And might it be needed for the period between uni and starting your first job?

If the answer is 'yes' to either of these, keep any money you have as liquid as possible - ie. cash in an instant access Cash ISA.

If the answer is 'no', let's move on...

Are you likely to touch this money in the next 5 years? I'm thinking house & flat deposits - whether you rent or buy, cars, etc, etc. If yes, again keep it liquid in a Cash ISA but this time, perhaps look to get a slightly better interest rate by fixing for a 1 year or 2 year at a time. Something like MoneySavingExpert will show you best buy Cash ISAs.

If this money is not going to be touched for more than 5 years, then things like bonds and equities come into play. Ultimately your appetite for risk determines your options. If you are uncomfortable with swings in value, then fixed-income products with fixed-term (ie. buy a bond, hold the bond, when the bond finishes, you get your money back plus the yield [interest]) may suit you better than equity-based investments. Equity-based means alot of things - stocks in just one company, an index tracker of a well-known stock market (eg. FTSE100 tracker), actively managed growth funds, passive ETFs of high-dividend stocks... And each of these has different volatility (price swings) and long-term performance - as well as different charges and risks.

The only way to understand this is to learn.

So that's my ultimate advice. Learn about bonds. Learn about equities. Learn about gilts, corporate bonds, bond funds, index trackers, ETFs, dividends, active v passive management. In the meantime, keep the money in a Cash ISA - where £1 stays £1 plus interest.

Once you want to lock the money away into a long-term investment, then you can look at Stocks ISAs to protect the investment against taxation. You may also put just enough into a pension get the company 'match' for contributions. It's not uncommon to split your long-term saving between the two routes.

Then come back and ask where to go next... but chances are you'll know yourself by then - because you self-educated.

If you want an alternative to the US-based generic advice, check out my Simple Steps concept here (sspf.co.uk/seven-simple-steps) and my free posts on this framework at sspf.co.uk/blog. I also host a free weekly podcast at sspf.co.uk/podcast (also on iTunes, Miro, Mixcloud, and others...) They were designed to offer exactly that kind of guidance to the UK for free.

  • This is a good answer if I had a lump sum that I was looking to save, but I'm talking about the pay that I'm getting every month. After I've taken out food, rent, heat, light, internet, what do I do with the rest? Nevertheless, good answer, +1
    – Yann
    Jan 6, 2015 at 15:25
  • Check out my Simple Steps. Build an emergency fund, settle any debts, start saving long-term. Invest in ways that you are comfortable with - educating yourself on the options. Enjoy life too but the more you keep your savings rate high and your expenses low, the sooner you can be financially independent. Check out Mr Money Moustache's Shockingly Simple Math Behind Retirement for more on 'retiring' early.
    – Chris
    Jan 6, 2015 at 15:26
  • Let us continue this discussion in chat.
    – Chris
    Jan 6, 2015 at 15:59

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