Refund rescues: Holly Lesmeister

Tax season can bring dread for many Americans. But for the three families participating in the Star Tribune's "Financial Fix-Ups" series, tax time brings opportunity.

By Kara McGuire

Last update: March 10, 2007 - 6:15 PM

"I don't know what happened," says Holly Lesmeister. After filling out her January budget worksheet, the Minneapolis resident realized she'd spent twice as much money on both clothing and food than her monthly budget allows. After three months of progress, Lesmeister and her financial adviser, Echo Huang, were concerned she was slipping back to her spendthrift ways.

Lesmeister, 30, wants to own a home and start saving more toward retirement. But when she met with Huang in August, she learned that her dream was at least eight years away.

Before she can even begin to save for a down payment, Lesmeister must rid herself of $14,000 in credit-card debt and $50,000 in student loans. Huang's key recommendations: steer clear of malls and fine-dining restaurants, save for emergencies and find freelance graphic-design gigs.

Despite January, Lesmeister has paid $1,700 on her credit card, and she's putting $100 a month into an online savings account now worth $630.

Over dinner in February, Huang tells her not to get discouraged by her overspending. "It's a habit. It's not easy to change," she says.

Lesmeister nods. "I really want a laptop now and am really fighting the urge. Last year I would have put it on the Visa card."

She jokes that she'll have to "protect her tax refund" of $1,500, which she plans to put toward the student loan with the highest interest rate.

Later that week, Lesmeister rifled through her January purchases and decided to return $100 worth of accessories and shoes that had seemed too good a deal to pass up. "I don't miss any of it," she wrote in a recent e-mail. "It is so easy to spend a lot of money on what in the end doesn't amount to much."

Her lapse lasted only a month. At the end of February, she printed her online bank statement, gathered five different color highlighters and went through her spending. She only adds up the totals at month's end, but she frequently checks her balance online, figuring she won't go over budget if she spends practically. This worked perfectly in February. She spent just $97 of the $150 budgeted for clothing, and hit her food budget right on the nose -- spending $249.90 of her $250 allowance.

"I am definitely back on track."

To stay there:

Repay those budget deficits: Lesmeister has some ground to make up for her excessive spending in January, says Huang. Any time she overspends in one category she needs to underspend in another, either that month, or in the months to come.

Stop saving for retirement: It's unconventional advice. But Lesmeister's company saves a percentage of her salary into a 401(k) plan whether she does or not. So Huang suggests she send $150 to her high-interest-rate student loan instead.

Find extra income: Huang's plan includes $500 a month that Lesmeister is to earnthrough freelance work. She needs to complete her business cards and website and start looking for freelance opportunities. Or she must begin pounding the pavement for a part-time job. "It's time," Huang says.

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