James and Brenda Stevenson find themselves having to cope with a difficulty most of us say "will never happen to me". James is 56 and was diagnosed with Huntington's chorea, a degenerative disease, five years ago. He is a qualified electrician, was self-employed for most of his working life and has worked at Rover since 1986.

Brenda was a senior teacher until the stresses of helping her husband with his disease resulted in her leaving the teaching profession, although she works part-time as a receptionist. They have two children, one of whom is still financially dependent upon them. This should probably cease in June, releasing about pounds 500 a month.

The couple's income is about pounds 2,500 a month. This includes disability living allowance and rent of pounds 280 from a lodger. Total monthly outgoings are about pounds 2,570 and they have built up a bank overdraft over the years.

Brenda and James are self-confessed "poor savers" and have almost no emergency account or savings at present. However, James has inherited pounds 65,000 from his parents, and their aim is to use this money to improve their situation overall

The adviser: Martha Cattheral is an independent financial adviser at City Independent Financial Planning, 3 Tolpuddle Street, London N1 0XT (0171-837 3133)

The advice: Increasing income is important as it is highly likely that James will have to retire on grounds of ill health at some point. His income will then be reduced from pounds 16,000 per annum to pounds 4,685 per annum (in other words his ill-health retirement pension), reducing the monthly budget after tax by pounds 650.

He may also qualify for monthly incapacity benefit of about pounds 280. If this should occur after June 1999, their outgoings will have already reduced by approximately pounds 500 per month.

James and Brenda have a pounds 60,000 mortgage with Portman Building Society. There are no penalties if they reduce or change their mortgage, on which they currently pay about pounds 500 per month.

I would advise that they should use pounds 15,000 of the pounds 65,000 inheritance on paying debts, carrying out house repairs, setting up a pounds 2,000 emergency account and having themselves a well deserved holiday.

Of the remaining pounds 50,000, I would suggest that pounds 25,000 should go on reducing the mortgage from pounds 60,000 to pounds 35,000. James and Brenda can then look to remortgage the remaining pounds 35,000 either with the Portman Building Society or, alternatively, the Nationwide Building Society, which currently offers a two-year discounted rate of 6.15 per cent. This would cost pounds 170.67 a month on an interest-only basis, and pounds 223.68 for a repayment loan. These rates are over a 25-year term. The loan also allows repayment of capital without penalty should further monies become available or if interest rates go up again.

The interest-only option, simply servicing the loan, means the mortgage is repaid on the sale of the property. James and Brenda could invest pounds 50 a month into a PEP/ISA to build up some capital which could be used towards the repayment. A pounds 50 monthly investment at a rate of return of 9 per cent will produce roughly pounds 8,110 over 10 years. Alternatively they could opt for a repayment mortgage, which looks to repay capital and interest over time.

This reorganisation will reduce Brenda's and James's outgoings by pounds 300 per month, depending on which option is chosen.

I recommend the remaining pounds 25,000 is invested in the following manner: pounds 3,000 should be added to an existing pounds 2,000 in their emergency account, giving pounds 5,000.

The home for this emergency account should be Standard Life Bank. Brenda and James can split this by investing pounds 3,000 into a 50-day notice account, paying gross income of 7.3 per cent. The remaining pounds 2,000 can go into the Direct Access Saving Account, which pays out at a rate of 7.1 per cent gross.

Should Brenda and James need to raid their emergency account, I strongly recommend that they immediately set up a direct debit of whatever is affordable to replace that money over time, so the next time they face an emergency there is money available without resorting to overdrafts or credit cards.

This leaves pounds 22,000. By investing pounds 6,000 in a low-risk income-producing PEP, such as the Commercial Union's Monthly Income PEP, the couple are earning about pounds 30 income a month, while maintaining the potential for tax-free capital growth.

A higher-risk investment, but one offering excellent income levels, is Scottish Life's Income Bonus Bond. This pays 9 per cent a year for 5.5 years. Then, net investment is returned in full provided that the FTSE100 and the SMI (Swiss) share indexes have grown by an average of 5.87 per cent annually. The worst-case scenario is that investors receive back their net investment less the income received - a pounds 10,000 investment would provide income worth pounds 3,928, so the return of capital would be pounds 5,772 (there is a 3 per cent set-up fee).

The total income of roughly pounds 360 a month, increasing to pounds 860 in June, plus pounds 873 a year from the Bonus Bond, will offset any reduction due to James's ill-health and still leave the couple pounds 210 a month better off.

I recommend that the remaining pounds 6,000 be invested in a range of second- hand endowments, ensuring the maturity of lump sums at specific times in the future. These are low-risk products which suit the couple's attitude to risk.

James and Brenda do have life cover of pounds 50,000 each through Teachers Assurance. This will last until 2012 when their current mortgage should end. This is valuable and should be maintained. Finally, Brenda has a Bupa policy at work which covers James as well. This could be very valuable in the future.