Wealth Check: Stretch and pray: how can they escape from financial peril?


The patients

Finances are tight for Victoria Cunningham-Downey and Chris Downey, and have been even more so since Victoria started a business last year.

She set up Stretch & Play in Lurgan, County Armagh, with just £500. It provides healthy and creative classes for young people, incorporating yoga, drama and stress management.

"I used this sum to hire an accountant to create the limited company and ask for charitable status," explains Victoria, 32.

After a year, she was awarded a grant of £14,000 from UnLtd, a foundation for social entrepreneurs, to cover this year's costs.

Chris, 36, is currently unemployed after working as a street fundraiser for two years, when he earned less than £10,000 a year. He is now looking for other work.

"He had supported us both on this since I left my full-time job in December 2005, until he resigned in June," adds Victoria.

She says she would like to earn "a decent living in addition to making a difference in my community".

In the short term, the couple are keen to build up their savings. They have £450 in a Smile cash individual savings account (ISA) at 5.5 per cent, and £5,000 in Lurgan's local credit union. This is a co-operative savings scheme owned by its members.

They have some debt, with £1,000 on a Barclaycard on an interest-free balance-transfer deal until January next year. Victoria also has to find £37 a month for the remaining £678 on her student loan.

The couple pay £374 a month for their 25-year £62,500 repayment mortgage – a three-year discount loan with Leeds building society at a current rate of 5.75 per cent; this deal ends next year. Fortunately, their three-bed home, bought for £102,500 in August 2005, has soared in value to £225,000.

For protection needs, they have £62,000 of life and critical illness cover with Legal & General. They have no retirement savings.

The cure

Victoria and Chris are in a precarious financial position. As a priority, they must work on building up their income and a "rainy day" savings fund, stress our panel of independent financial advisers (IFAs).

Income

Victoria should consider taking a minimum salary from her company, says Keith Churchouse of IFA Churchill Investments. Current rules allow her to earn up to £5,225 without paying income tax.

Savings/investments

The couple could consider switching their money from the credit union, as a decent high-street account will offer better interest, says Caroline Hawkesley of IFA Evolve.

Tax-free ISAs are a good option: up to £3,000 can be invested in a mini cash ISA each year.

Debt

They can continue paying the credit card balance off at the minimum level as it is interest-free. But they must avoid adding to the debt, says Mr Churchouse, and they should look to pay as much as possible before the 0 per cent period ends.

Property

Victoria and Chris must ensure they don't get stuck on their mortgage lender's standard variable rate (SVR) once their discount deal ends, says Ms Hawk- esley. "They could find their costs increase substantially next year."

They should research the options and get ready to switch to a better deal.

Retirement

Pension contributions are a low priority for the couple, says Alex Pegley of IFA Calculis. But if possible, they should start contributing to a personal plan; £20 a month saved will ease the financial burden in old age.

Protection

When they can, they should review their life insurance. Providing for more than their mortgage in the event of either of their deaths is important. Around £150,000 of cover over 20 years on a joint-life basis costs as little as £16.50 a month, says Mr Churchouse.

If you would like a makeover write to Julian Knight at The Independent on Sunday, Independent House, 191 Marsh wall, London E14 9RS. Or emailj.knight@independent.co.uk

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