In the beginningIt is a paradox that young people should be exercising much more financial prudence than those later in life, even though they may be earning less.

The major concern for any young person should be protection.

Disaster can strike in many ways -- death, ill health, a serious accident, redundancy.Last week, I saw a young man for whom my firm has just sold his business.

We have £500,000 on deposit for him with no capital gains tax problems.

He was living in rented accommodation, had a wife and young family and no debt.

There was no prospect of incorporation.

The client wanted a general chat about his future.

These are some of the matters discussed:ProtectionPermanent health insurance (PHI) is well known but little used.

Last month, I saw a client who was expecting to receive a substantial sum in damages following an horrific car accident.

He used to be a financial adviser and has been prudent enough to put in place his own PHI which is now making regular tax free payments while he struggles to recover from physical -- and even worse -- psychological injuries.

PHI provides a valuable cushion.PHI payments are generally not net relevant earnings (NREs) for pension provision purposes.

Exceptionally, such payments are usually NREs if from a group PHI contract provided for employees as part of their remuneration benefit.Self-employed people should thus always consider a waiver of premium benefit with a regular personal pension contract so that if an inability to work does arise, the pension will continue to be made up and the funds will be there to take over at aged 60 when most PHI payments will cease.Critical illness cover, which most commonly pays a lump sum on diagnosis of serious illness -- even if the insured survives -- and private medical insurance are also worth considering.Protect dependentsPure term life insurance is cheap.

It is possible for the self-employed to use up to 5% of NREs to provide this type of cover and to receive full income tax relief on the premiums.

Check with the provider what the position would be if illness occurred and NREs no longer applied.

It should be asked whether the provider would allow a switch to ordinary assurance without penalty or medical examination.

A rough rule of thumb is to have term cover to the value of ten times annual earnings.

Alternatively, assume the sum insured will produce a gross yield of 4% per annum (plus a state widow's pension).An eye should always be kept on potential inhe ritance and all term life cover written under a general discretionary trust.

Appointing a trustee of the policy would enable payment to be made without waiting for probate of a will.

There are policies that provide an income benefit for dependents -- often RPI linked -- which are useful, particularly when interest returns have the prospect of falling farther.

Also to be considered is what would happen if a spouse became incapacitated or died and provision made for such contingencies.Build for the futureThe client in this case was a higher rate taxpayer as a result of income from another occupation but was looking to purchase another business in a year or so when he thought prices would have fallen.

He thus needed to retain the bulk of his money in cash.

Premium savings bonds are an attractive form of cash deposit for a higher rate taxpayer with almost instant access and any prizes tax free.

The maximum deposit is £20,000 per person.An extra single premium pension contribution to a unit-linked minimal cost provider is attractive.

In his early 30s, a gross premium of £10,000 compounding for 30 years at 15% per annum produces a staggering £662,000.

Assume a more realistic real (that is, above inflation) return of 4% per annum and the figure is reduced to £32,000 at today's purchasing rates -- illustrating the necessity to keep saving.Again with an eye to inheritance tax, death before retirement should be considered.

Most providers allow the creation of a discretionary trust to receive that benefit as opposed to having to nominate it to specific beneficiaries.

Again, the appointment of a trustee should be thought about.BorrowingAlso discussed in this case was the possibility of using the carry-forward and carry-back pension provisions to make a one-off payment on which tax relief would be available.

That payment would be a self-invested personal pension (SIPP) which could gear up with borrowing and purchase within the fund the premises from which a new business would be run.

A major disadvantage of this scheme is the inability for the policyholder to purchase assets from that SIPP in the future, but it can be very tax efficient.PartnershipsIt is often attractive to take a spouse into partnership to reduce the income tax burden.

The recent matrimonial case of White v White 1998, The Times, July 13, 1998 CA, emphasised the need for a carefully drafted partnership deed.

Without it the effect may be to give the spouse a greater cut of the assets on any future divorce.And finallyEnduring power of attorney should be put into place.

If deemed unnecessary, alert yourself to the situation by discussion with colleagues acting for clients who are patients under the Court of Protection's regime.

Look especially at the costs involved in applying that regime.

When making a will, it should be made assuming death to be immediate, and not in 30 years time.

To be remembered in particular are the increases to capital gains tax applying to trusts in this year's Finance Act and it would also be appropriate to consider making a bare trust provision for infant children as opposed to any form of accumulation and maintenance settlement.The strategic aim should be to build up assets within a pension fund and outside so that by the time the 50s are approaching, status has materially improved.

But then there will be other decisions to be made.