Elizabeth and Ward Vandorpe, 46 and 45 respectively, are ploughing their savings into a new business venture in the hope that this will provide sufficient income for their family's future. Elizabeth is founder of The Blessings Book publishing company, started two years ago, which produces works in the field of spirituality.
"We've put close to £20,000 into the business but this hasn't been returned to us in profit yet," she says. "However, it's an innovative company, and I'm confident that we can build it and be financially comfortable from this eventually."
In the meantime, she is seeking advice on where to put their "pockets of money", as they don't have time to seek financial advice while focusing on their new project.
Ward also works as a self-employed strategic marketing consultant, and, together, they earn around £100,000 a year. From this, they put £1,500 back into the business each month.
"We feel the company is on the crest of a wave at the moment," Elizabeth says. "Among other things, we are expanding the range of books and workshops, and planning a tour in the UK."
They live with their children – Eline, Emily, Molly and Katie – in Great Bedwyn, Wiltshire. Each of the three girls has £2,000 in a Nationwide current account as a starting block for their future financial needs.
Elizabeth and Ward have £4,000 in a Nationwide current account; £9,000 in a Barclays instant-access savings account paying 0.1 per cent, and £5,000 in a Lloyds TSB business account. In addition, they have £6,000 in a cash individual savings account (ISA) with Nationwide as an "emergency fund", paying 0.25 per cent. They pay £1,141 a month for their 25-year, interest-only, £323,000 mortgage at 4.24 per cent with Santander. "We were on a tracker until November and came off this, so we are languishing on the standard variable rate at the moment," Elizabeth says. "But we have been to see a broker to put us back on another decent deal."
The family's five-bed house was bought in 2007 for £380,000; this is now valued at around £475,000. They pay £69 a month for life insurance with Santander to cover the value of their mortgage and home insurance.
For long-term planning, Elizabeth has set up a personal pension with Standard Life, although she is not currently contributing to this. "I paid into it for 15 years and think it's worth around £28,000 – though I'm not sure what to do with it," she says. Ward is not paying into a pension.
While they are busy building the business, the family must also go "back to basics", stresses Duncan Carter from independent financial adviser (IFA) Clearwater Financial Planning, and tackle their personal finances. They must plan to pay down the mortgage and invest towards retirement, agrees our panel of advisers – with protection another priority.
They have enough cash at hand for small emergencies so they should put any surplus towards other financial goals, says Robert Forbes from IFA Plutus Wealth Management. However, they are not making use of the best rates on their cash ISA allowances, now at £5,100 each a year. For instance, the new e-ISA with Nationwide pays 2.75 per cent compared to the measly 0.1 per cent offered by their Barclays' savings account. They could shift some of the money in this account into an ISA paying a better rate.
While Elizabeth and Ward have three children, they have other vital financial issues to consider before worrying about saving for the cost of education.
The family is burdened by a long-term, interest-only mortgage with no specific plan to repay the capital debt. "Ignoring interest, the capital needs repaying at a flat rate of almost £15,000 per year," says Dennis Hall from IFA Yellowtail Financial Planning.
They will have to save that money somehow, downsize to a smaller property or start paying back some of the debt, warns Mr Forbes. "The latter option is the best to avoid a potential financial disaster later down the line."
Carrying out detailed research when moving on to another deal by approaching a number of brokers is wise. Also, if possible, switching to a repayment mortgage would be a good move towards dealing with the debt.
The couple appears to be relying on the business or their property as a means of providing income in retirement, which is a dangerous strategy, stress the advisers.
"There can be no guarantee that a business will have value or that house prices will continue to rise as they have over the past 20 years," says Mr Carter. As a first step, they can find out from the Pension Service what state benefits they have built up, and if there are any contribution gaps. "This is always a possibility with the self-employed," says Mr Hall.
From there, they should take advice about how much they should be saving to meet their target retirement income, as the sum in the Standard Life pension will be far from sufficient.
Financial protection for the family in the event of death, serious illness or disability needs to be addressed as a priority; particularly as Elizabeth and Ward are self-employed. "They have modest levels of savings that would serve reasonably well as a contingency fund in the short-term," says Mr Carter. "But there is little provision in the event of a catastrophe such as a critical illness occurring, either of them dying or being unable to work through illness or disability."
The advisers suggest a family income benefit policy, to provide a monthly income rather than a lump sum in the event of Elizabeth or Ward's death. "This can provide a surprisingly high level of cover for quite modest premiums," says Mr Hall.
While they have some cover for the mortgage, they should check the terms of this to see on whose death it would pay out, for instance. Also, they may wish to switch policies, as buying with their mortgage provider can be an expensive option.
An additional form of cover they could consider is income protection, which will pay out a percentage of earnings if Elizabeth or Ward suffers an illness or disability.
Wills and inheritance
If they haven't already done so, Elizabeth and Ward should arrange a will, says Mr Forbes.
"If anything were to happen to Ward, this would mean his loved ones wouldn't have to go through a lengthy probate process."
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Write to Julian Knight at the Independent on Sunday, 2 Derry Street, London W8 5HF email@example.com