The Claro adulting guide to financial freedom

Essential financial planning, financial management and savings tips for millennials


Finance is difficult. So why does nobody tell us about financial planning? Or financial management? Why are we left to work it all out for ourselves? We’re busy adults, doing ‘adult’ things like working, paying taxes, finding a home and all the other responsible things that adults have to do. 

So where are we meant to find the time to learn all about financial management and financial planning? 

Most of us could do with a little help – an introduction to the mechanics of money. The language of finance. The best ways to manage your money and make every penny count.

Don’t worry. You’re not alone. 18-24 year olds rate themselves as the least confident and knowledgeable of all UK adults when it comes to managing their money. 55% of 25-34 year olds aren’t happy with their financial circumstances. Lots more young adults like you are in the dark when it comes to financial planning and management.

So let’s shine a light on all things money. This guide to financial freedom takes you through six common “money events” that you’ll need to adult your way through life. Learning (with a bit of coaching) will bring you closer to finding financial freedom.

Key financial facts:

UK Adults 18‑24
UK Adults 25-34

17% are over‑indebted
23% are over‑indebted

52% are financially vulnerable
47% are financially vulnerable

94% have no investments
85% have no investments

20% have no cash savings
19% have no cash savings

18% have a payday loan olds
37% have a payday loan

30% have a Student Loan Company loan
Source: FCA Financial Lives Survey

Six essential aspects to financial planning

Let’s start by looking at the most important part of financial management, and your first financial step – your budget.

Creating a budget

Annual income twenty pounds, annual expenditure nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
Charles Dickens

Get your budget right, and all your other financial planning gets that little bit easier. Setting a budget isn’t too difficult either – you just have to start by detailing your incomings and outgoings.

If you already have a clear monthly budget, that’s great.

If you haven’t worked one out, now’s the time to start. 

Budgeting is a good habit. So the sooner it becomes a habit, the better.

Your budget is your planning tool. The first step towards taking control of your finances. It lets you see where you are right now and start mapping out how to get to where you want to be in the future.

Budgeting your first steps to financial freedom

There are two sides to every budget. Income. And outgoings.

Total income and expenditure

Now you need to see if your income and expenditure align. Ideally, you’ll have more money coming in than going out. 

If you’re overspending, then you need to make some adjustments. 

At least now you have a clear understanding of where your money’s going so you can do something about it. 

The key is to keep budgeting, and to make it a habit, so that rather than just ignoring the reality of your finances, you’re taking full control. 

If you find you consistently have less money than last month, here are a few things you can do:

  • If you work on tips or commission, try to keep that to one side (or at least a proportion of it during a good week or month) and live mainly on your wages
  • Split a monthly payment into separate weeks. Don’t spend next week’s cash this week
  • Go cash only. Leave your debit or credit card at home so you can’t make a quick impulse buy.
  • Don’t use your credit card if you’re going to struggle to pay your monthly bill
  • Cancel any subscriptions you don’t use (or can just live without)
  • Save as much as possible and keep your savings in a separate account it to stop your spending creeping up
  • Sign up for our app’s waiting list today for some financial coaching

Some people follow a 50/30/20 budget:

50% of their budget goes on the essentials. Rent, bills, travel to work
30% goes on the “wants” and “nice to haves” – going out, Spotify subscriptions, taxis, new shoes – all the stuff you want to spend your money on 

20% goes on savings and paying off any loans or outstanding debt

Everyone is different. It’s important that you work to a budget that makes sense for you. So if 50/30/20 needs to become 50/35/15 or 45/30/25, feel free to play around with the percentages. 

The important thing is that whatever budget you come up with, stick to it. Creating a budget is the first, most essential financial planning step on your path to financial freedom.

Credit cards

When credit cards are used responsibly, they can be a great financial tool. When credit cards are treated like you’re getting free money? That’s when problems can start.

Credit cards allow you to pay for items in a similar way to a debit card, except instead of the money coming out of your account, the credit card company pays for it. They’ll send you a bill each month and it’s your responsibility to pay it off. 

If it’s paid off in full, you won’t get charged any interest. However, if you choose to pay a smaller amount, it’ll be carried over to the next month and you’ll get charged interest on the whole balance.

Credit cards are great for improving your credit score, as it proves that you can stick to a financial agreement and pay it off, showing you to be a lower-risk borrower – which is good news when you’re applying for a mortgage or other financial products. However, they are only helpful if used responsibly and you are confident that you can make the payments.

Student loans

Do you have a student loan? 

You’re certainly not alone. 30% of UK adults aged 25 to 34 have one – and all the debt that comes with it. 

Big numbers

In England the average debt is £40k, in Wales it’s nearly £25k, it’s £23.5k in Northern Ireland, and in Scotland it’s nearly £14k. Those are some big numbers. 

But did you know there are two types of loan depending on when you started in higher education?

When are outstanding loans wiped out?

The longest any loan will last is 30 years. It will vary though depending on your age, where and when you took it out.

Should I prioritise paying off my student loan?

The Institute For Fiscal Studies estimates 83% with English student loans won’t clear the debt (including interest) within the 30 years.

Short answer – it depends. 

With a low Plan 1 student loan interest rate it’s likely that other debts – your credit cards, loans or hire purchase, will be costing you more. It makes sense to pay those off before repaying your student loan.

On Plan 2 if you’re a low to mid-income earner, while you’ll pay some interest chances are you won’t repay all of the original borrowing plus the interest added before the debt is wiped.

You need to be a consistently big earner to clear the entire debt and the interest. In which case you might want to look at overpaying to reduce the amount of your entire repayment. 

You could fill dozens of student notebooks on the hows and whys and whens of student loan repayments. However, if you want a good overview – be it a contentious, fiercely complicated and often stressful one – you’ll find plenty of detailed analysis here


‘Nothing is certain but death and taxes.’ Taxes are an inescapable fact of life and it’s important to understand them as part of your financial management plan.

When reading our tax section, please note that tax treatment depends on your individual circumstances and is subject to change.

Income Tax

The standard Personal Allowance is £12,500, which is the amount of income you don’t have to pay tax on.

It might be bigger if you claim Marriage Allowance or Blind Person’s Allowance, and it might be smaller if your income is over £100,000 (and you don’t get any if you earn over £125,000).

  • A basic rate tax of 20% applies to earnings between £12,501 and £50,000
  • A higher rate tax of 40% applies to earnings between £50,001 to £150,000
  • Additional rate tax of 45% applies over earnings of £150,000

If you live in Scotland, your income tax bands are different.

Everyone has a tax code used by employers to work out how much Income Tax you pay. You can check your Income Tax for the current year here.

National Insurance

Your National Insurance contributions allow you to qualify for benefits such as your pension, Jobseekers Allowance and Maternity Pay.

Employees pay what’s called Class 1 contributions, collected via PAYE (Pay As You Earn tax) with income tax. For 2020-21 the rate is 12% on earnings between £9,500 and £50,000, and 2% on anything more. In addition, employers make contributions on staff income, usually of 13.8% of earnings above £702 per month. 

If you’re self-employed, you’ll pay Class 2 National Insurance contributions of £3.05 a week on earnings of more than £6,475.

Class 4 contributions on profits above £9,500 are 9%, falling to 2% on earnings above £50,000.

If you’ve underpaid in the past you can top up with Voluntary Class 3 contributions at £15.30 per week from 2020-21.

Other taxes

As if NI, PAYE and Income Tax weren’t enough, there’s no shortage of other taxes that you’ll need to take account of when organising and planning finances. Including: 

  • Council Tax – to pay for local amenities 
  • VAT – the (normally) 20% tax you have to pay when you buy goods or services
  • Vehicle tax – that allows you to drive legally
  • Capital gains tax – when you sell property, possessions and business assets 
  • Corporation tax – on business profits of 19%
  • Inheritance Tax – on the estate of someone who’s died. Normally charged at 40% above a tax-free threshold of £325,000.

Freelance taxes

There are a lot of positives to being a freelancer but having to do your own taxes definitely isn’t one. Now, once you’re set up as a sole trader or a limited company, have filled in your HMRC self-assessment form and registered for VAT, it’s time to get to grips with how much tax you’ll be paying.

Just like employees, self-employed workers are entitled to the same tax-free personal allowance, which is currently £12,500 for the 2020-21 tax year. However, the difference as a freelancer is that you pay income tax on your profits, rather than your whole income. 

So, how do you work out your profits? You deduct your business expenses from your overall income – so it’s time to start looking after those receipts you’ve been shoving in your pockets. The amount you have left after deducting these expenses is the amount you’ll pay your taxes on.

The tax you pay above the personal allowance is dependent on your earnings, so it’ll either be 20%, 40% or 45% in England, Wales and Northern Ireland.

Let’s say as a freelance web developer, you’ve earned £60,000 this year. You’ve bought some new equipment, so your expenses are £5,000, meaning that you’ve earned £55,000 overall. The first £12,500 is your tax-free Personal Allowance. Your earnings between £12,500 and £50,000 are taxed at a 20% rate, and the outstanding £5,000 will be taxed at 40%.

It’s so important to remember to keep track of all your business expenses, so that when it comes to completing your tax return every year, you’re on top of your finances – and don’t forget that you’ll also need to budget to actually pay your tax bill!

Paying into a pension

Paying into a pension? At 24? Brilliant!

For most of us, paying into a pension has never been much of a priority. When you’re still the right side of 40, retirement seems like it’s a lifetime away. And there’s always more attractive, more immediate competition for your financial attention. 

Things are changing though.  

37% of 18-24 year olds now have a DC pension. You might already have one yourself. If you’ve been auto-enrolled into a workplace pension – where you pay 5% of your qualifying earnings into a pension pot, and your employer tops it up with an additional 3% – you will.

What is a DC pension?

A DC (Defined Contribution) pension sees employee and employer contributions, along with investment returns and tax relief, combining to build a pension pot.

By the time we get to 25-34, 48% of people have a DC pension. On top of that, one in seven of us have a DB pension.

What is a DB pension?

A DB (Defined Benefit or ‘final salary’ pension) pension provides a regular retirement income based on how much you earn when you retire.

DB and DC pensions both have pros and cons when it comes to risk, reward, timescale and flexibility.

And whatever age or stage in life you’re in, here’s why starting a pension today can be very beneficial for you when you reach retirement.

When should I start investing in a pension?

Ideally – the second you earned your first wages. But if you don’t have a pension, the second best time to start is now. 

Whichever scheme you use, it’s wise to get started as soon as possible. 

For one simple reason. The earlier you start a pension, the longer it has to grow. The longer it has to grow, the more money you have when you retire. 

Setting up and planning a pension in your 20s will save you from having to play catch up later in life. 

And when you look at the figures it’s amazing how much late-starters might have to pay into their pension to make up for lost time.

How much should I pay into my pension?

Here’s a simple way to work out what percentage of your income to pay into your pension each month until you retire.

The age you start your pension, divided by two. 

So if you’re 28, then that means 14% of your pre-tax salary per month. 

Earning £30,000 a year?

By that calculation, you’d pay £350 per month into your pension. 

But you’ll save more than that. On top of that £350, your employer pays a minimum 3% contribution (£75). So the total amount in your pension pot is £425. Plus, you also get income tax relief of 20%. This is where the money you would pay for income tax goes into your pension instead – so you’ll end up paying less income tax that month. 

That’s a lot of maths. So here’s a simpler way.

Put away 15% of your annual salary (assuming that your salary rises with age). 

Most importantly, just start contributing as soon as possible. And keep it going. Even putting aside £40 or £50 a month can make a difference, and you can always contribute more later. Of course, the monthly amount you pay in all depends on your circumstances, your ambitions and your other financial commitments. 

Whatever you decide, always get proper pension advice from a professional.

Buying a house

Nobody likes paying rent. Many of us want a place of our own. It’s the dream.

But it’s not until you begin the process of buying your first home that you discover exactly what’s involved. The costs, the complications and the financial support – all these jigsaw pieces that need to fit together so you can get onto the property ladder.

Buying a home isn’t just expensive. It isn’t just complicated. It’s stressful too. But if you can reduce the cost, complexity and stress, you’ll be much better off.

Help to Buy: Shared Ownership

You’ve probably already heard of the UK Government’s Help to Buy scheme. But what is it exactly and what do you get? 

Available in England, it’s a purchase for shared owners and first-time buyers unable to afford the full 100% mortgage on a home. As a ‘Shared Ownership; ownership initiative’ Help to Buy means you pay for 25% and 75% of a home’s value and pay rent on the remaining share. Then, over time, you buy more and more of the house until finally 100% of what you’re paying is the mortgage.

Can you use Help to Buy?

You can, as long as:

  • your household earns £80,000 a year or less or £90,000 a year or less in London
  • you are a first-time buyer, you used to own a home but can’t afford to buy one now or are an existing shared owner looking to move.

To buy a home through a Help to Buy Shared Ownership scheme contact the Help to Buy agent in the area you want to live.

Help to Buy: Equity Loan

This brand-new, government-backed equity loan scheme is a low-interest loan to help towards your housing deposit. First-time buyers can receive a loan of up to 20% of the property value (or 40% in London) to help them get on the property ladder. You can find out more about Help to Buy equity loans on the GOV.UK website.

Lifetime ISA

Replacing the Help to Buy ISA, which ended for new applicants in November 2019, a Lifetime ISA is a way to save efficiently for your first home. 

If you’re a first-time buyer, you can save into a LISA and the government gives you a 25% tax free bonus every year, on any amount up to £4000. So if you save £4000 in one year, the government tops that up to £5000. 

You can withdraw your money at any time, but if you don’t use your LISA funds for a new home, you will have to pay a 25% fee (paying the bonus back). 

If you already have a Help to Buy ISA, you can keep paying into that until 2029. 

Valuation fees

Your mortgage company needs to establish the value of your property. Some lenders include this cost as part of the mortgage, others will charge you between £150 and £1,500 depending on the property’s value. So make sure you ask upfront.

Don’t be fooled into thinking this is a structural survey. It certainly won’t point out any necessary repairs or maintenance – things you’ll need to pay for later on. These are all handled by…

Surveyor’s fees

… your surveyor’s survey. This will uncover any structural issues before you commit to buy.

With a basic home survey costing around £250 and a full structural survey £600, a good quality surveyor could save you a fortune in expensive repair work over the long term. £500 on a survey might seem steep, but roof repairs can quickly run to five times that figure!

Mortgage fees

Your mortgage might include: 

  • A booking fee, £99-£250
  • An arrangement fee of up to £2,000, and
  • A mortgage valuation fee (£150 or more)

All payable upfront, before your first payment.

A solicitor or licensed conveyor will normally take care of the paperwork and legalities when buying or selling your home. They’ll also conduct local searches to check for any access, planning issues or problems.

  • Typical legal fees range between £850-£1,500 including VAT.
  • Local searches, which will cost £250-£300.

Electronic transfer fee

The cost for your lender to transfer the mortgage money to your solicitor is usually around £40-£50.

Stamp duty

Stamp duty is a tax on property purchases. If you don’t factor in the cost of Stamp Duty when buying your home, you’ll end up with a nasty surprise.

The Scottish equivalent is called the Land and Buildings Transaction Tax and in Wales, it’s the Land Transaction Tax.

In England, you’ll need to pay HMRC within 14 days of completion – though normally your conveyancing solicitor (the person responsible for the legalities of your purchase) will file your return and pay the Stamp Duty on completion day.

Until April 1st 2021 there’s a Stamp Duty ‘holiday’ on residential properties costing less than £500,000.

Between £500,001 to £925,000 is taxed at 5%, and the £575,000 over that (£925,001 to £1.5m) is taxed at 10%.

As things stand from April 1st 2021 Stamp Duty will revert to its previous rates unless you’re a first-time buyer.

If you’re buying your first home, or if you and anyone else you’re buying with are first-time buyers.

You can claim a discount (relief) from 1 April 2021. This means you’ll pay no Stamp Duty up to £300,000 and 5% SDLT on the portion from £300,001 to £500,000

If the price is over £500,000, you follow the rules for people who’ve bought a home before.

For non-first time buyers here are the April 21 rates.

Property value
Stamp duty rate

Up to £125,000

The next £125,000 (from £125,001 to £250,00)

The next £675,000 (from £250,001 to £925,000

The next £575,000 (from £925,001 to £1.5 million)

The anoint above £1.5 million


A quick stamp duty example

Let’s say that in May 2021 you buy a house for £275,000. The SDLT (Stamp Duty and Tax) you owe will be calculated as follows:

  • 0% on the first £125,000 = £0
  • 2% on the next £125,000 = £2,500
  • 5% on the final £25,000 = £1,250
  • total SDLT = £3,750

Other expenses when buying a home

As wonderful as it feels to be able to walk through your own front door, you’re not necessarily out of the woods when it comes to costs. It’s worth remembering that as well as all the other expenses you’ve incurred up to this point, there are other costs you will have to meet once the contracts have been exchanged.

Maintenance and repairs

Your survey may have drawn attention to work that needs to be done on your new home. With the average repair bill for new homeowners around £6,000, you’ll want to be sure that you have money put aside to pay for it.

Property insurance

Your mortgage company will insist that you have building insurance to protect against damage from fire, floods, subsidence and other horrors. It’s a wise investment.

It would also be sensible to make sure you’ve got sufficient home contents insurance and life insurance to cover the mortgage in the event of you not being around too.


Maternity, shared leave, and paternity pay

It’s the most joyous day of your life. But giving birth or adopting will probably mean a significant amount of time off work – and the costs that come with that. Fortunately, there’s a range of government support for new parents. 

Here’s an overview of what to expect.

Maternity pay

Did you know that you’re entitled to up to 52 weeks’ maternity leave if you’re having a baby?

Or that you can start your maternity leave from up to 11 weeks before your baby is due or work right up until you give birth?

If you’ve worked continuously for at least 26 weeks for the same employer and earn an average minimum £120 a week for 8 weeks before your qualifying week then here’s how it works:

For the first get 39 weeks, you’re entitled to Statutory Maternity Pay (SMP) which is made up of:
90% of your average weekly earnings for the first 6 weeks
Followed by 33 weeks at either SMP (currently £151.20 a week) or 90% of your average weekly earnings – whichever is the lowest.
The final 13 weeks of a full 52 weeks’ maternity leave is unpaid unless your contract says otherwise.

Some employers offer enhanced maternity pay, but you’ll need to check your contract to find out the rate and how long it extends for.

Interested in what you and your partner are entitled to? You can use the maternity pay calculator to work out how much you could get.

Shared leave

In the first year after your child is born or placed with your family, you and your partner may be entitled to 50 weeks of leave and up to 37 weeks of pay between you.

The exact amount you’re entitled to depends on whether you are birth parents or adopting and also how you chose to split the Shared Parental Leave (SPL) and Statutory Shared Parental Pay (ShPP) between you.

Check here for birth parent eligibility.

Check here for eligibility if you’re adopting.
Use the maternity pay calculator to work out how much you’re entitled to.

Paternity pay

If your partner is having a baby, you’re adopting a child or having a baby through a surrogacy arrangement and you need to take time off then you might be eligible for:

Check here to see what you’re entitled to.

Life’s a journey

Life’s a journey, and part of the challenge of adulting is pretending that we all know where we’re going.

But until we come face to face with tax, with maternity pay or student loans or think seriously about buying a house, then really… why should we just know the financial implications? 

We weren’t given a guide to financial freedom at school. Nobody ever sat us down and talked us through financial planning and how to steer our way through the maze of different financial packages, products, possibilities and obligations. 

No one ever explained the real world story of your money. 

Hopefully, this financial guide has been a good start or at least filled in some of the gaps.

How Claro can help

If you need help making smarter financial and investment decisions every day, the Claro app will act as your digital financial coach, while giving you access to a supportive community you can discuss your money goals with.

Download the app today to join our movement.

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