Plan your kids' financial future

Handyside advises Steven and Debbie to take out a joint life level term critical illness plan over nine years, with a sum assured of £82,000, to cover the total capital for the time remaining on their mortgage. He says: "I recommend a plan with AXA Sun Life, which will cost them a monthly premium of £71.06." In line with the specific conditions of the plan, it will pay out £82,000 if either Debbie or Steven were to suffer a critical illness.

Handyside advises Steven to speak to his employers to see what - if any - protection he has in place to cover his income in the event of illness or accident. "As he's the higher earner in the family, Steven should clarify what income protection benefits he receives. He might need to secure his income up until retirement, to ensure the family continues to receive an income if he falls ill or suffers an accident that means he's unable to work for a long period."

Handyside says the emphasis is on securing Steven's income as Debbie is unsure whether her income will remain at its current level, due to a project she's involved in at work. "If her project doesn't continue beyond April, she will see a significant drop in her monthly net income," he says. "This would greatly reduce the budget available to meet their objectives and we would need to re-evaluate their goals."

Next, Handyside looks at Debbie and Steven's mortgage. Their current deal of 4.5% ends in January 2008, when they will be converted to the lender's standard variable rate. This is unlikely to be very competitive, so Handyside advises them to shop around for a better rate. "But before they do this, I recommend they review the performance of their endowment and ISA repayment plans. They can obtain projections of the potential benefits from the providers to assess any likely shortfall at the end of the mortgage term."

This is important to ensure that there will be sufficient funds to repay the debt at the end of the loan term in nine years. "The sooner the Goodes understand their situation, the sooner necessary action can be taken to address any problems," says Handyside. "If a shortfall is identified, they'll need to start making further contributions elsewhere."

He then turns to their savings and investment strategy. Aside from their contributions to their mortgage repayment plans, the Goodes have very little savings. Handyside says they should start by aiming to build up an emergency fund. "It's essential to have instant-access, liquid assets on hand to deal with any unforeseen costs or financial difficulties, such as redundancy or car repairs," he adds.

Handyside recommends they contribute £250 a month to a cash ISA. Everyone has a tax-free allowance of £3,000 to save in an ISA every year (rising to £3,600 from April 2008), and £250 a month will make maximum use of one of their allowances. "I recommend the Barclays' Tax Beater cash ISA, which has a competitive rate of 6.5%, is instant access and pays interest monthly," he says.

Debbie and Steven would like investment advice because they want to start building up funds for their daughters' futures. "They should use the remainder of their budget, which is approximately £178 a month, to invest in a stocks and shares ISA in Debbie's name," explains Handyside. "The stocks and shares ISA connected to repayment of the mortgage is in Steven's name, so they're already utilising his allowance." Handyside advises them to open an equity ISA that doesn't penalise for partial withdrawals after five years. "This means they'll be able to use the fund for ad hoc withdrawals, if and when required."

He advises they contribute to a multi ISA with Skandia. "I suggest they invest in a range of funds to match their balanced overall attitude towards risk and to provide the potential for growth. The fund split I recommend to achieve this is as follows: 22% in the Rensburg UK Select Growth trust; 22% in Artemis Growth; 30% in New Star Sterling bond; 12% Norwich Union Property trust; 5% M&G High Interest; 3% Prudential North American; 3% Cazenove European; 2% Schroder Tokyo; and 1% in the Invesco Perpetual Pacific."

Handyside then turns his attention to Debbie and Steven's pension arrangements. The Goodes are fortunate to be contributing to good schemes through their employers - Debbie contributes £73 a month to the NHS pension scheme and Steven puts £271 a month into the police pension scheme.

"If Debbie continues working until her retirement age of 60, she will have achieved full service within the NHS pension scheme and can expect half her salary on retirement, which means she needn't make further contributions elsewhere," explains Handyside. Steven is in a similar situation: if he works until age 54 he will be very close to full service and will be able to retire on two-thirds of his salary.

The last topic on the agenda is writing a will. Neither Debbie nor Steven have a will in place, and this is particularly important, considering they have three young daughters. "A will is vital to ensure that their wishes regarding their assets are carried out correctly and their children are looked after," says Handyside. The Goodes should seek specialist legal advice to draw up wills as soon as possible.