New business, new priorities

The first time Holly Lesmeister sat down in certified financial planner Echo Huang's Minnetonka office, "she actually had no clue [to] the total debt she had," Huang recalls. Imagine her surprise when she opened an e-mail last week from Lesmeister, 31, to find a spreadsheet and chart showing how income from her new freelance business will allow her to pay down her debts and purchase a condo in 2011 -- more than two years ahead of schedule.

"I'm very impressed," says Huang, a partner with the Advocate Group.

But Huang also is concerned. Because Lesmeister's marketing communications and graphic design business is just starting, Huang worries that Lesmeister's projections may be too optimistic, especially since she recently cut her regular job's hours by 25 percent -- or $400 a month -- to focus more time on her venture. "My concern is [that] she has to get at least $400 per month in cold, hard cash," Huang explains.

Lesmeister, who lives in Minneapolis, insists it won't be a problem, with a new business partner and a business name (Trebuchet -- "a medieval catapult or a modern-day maneuver to hit your target audience," she explains). She already has a steady stream of clients, and Trebuchet is in the black.

She expects to earn enough to make up the $400 from her day job plus beef up her largest student loan payment from $219 per month to $900. She'll also stop her 401(k) contributions and increase her monthly online savings account deposit from $100 to $385, to use for emergencies and eventually, to open a Roth IRA. Huang made that suggestion in March because Lesmeister's company contributes a percentage of her pay whether she does or not.

"I set the [student] loan payment high ... to motivate me to work really hard at the new business," Lesmeister wrote in an e-mail. In the past year, her student loan balance has climbed close to $1,900, in part because of interest on a loan in forebearance.

Huang suggests putting the extra $700 Lesmeister is expecting into her savings account for a trial run rather than paying her loan. "That way, if you estimate incorrectly, you still have the money saved and can tap into this savings account for the short term," she says. If Lesmeister hasn't any cash-flow issues after three months, she can send in a sizable payment.

Cash flow used to be a huge issue for Lesmeister, who sliced her monthly food and clothing budget from $700 to $400 in the past year. It took some time for her to "set up good habits," she says, but today she's "definitely not eating out as much, and if I do go out, I'm having the guy pay." She's swapped BCBG for Old Navy.

The secret to her success? Initially, it was a budgeting spreadsheet Huang made for her. Now mindful of her spending patterns and what it feels like to live within her means, she abandoned the worksheet. "I'm not a tracker," she explains to Huang as they sit in a wine bar one recent afternoon. If her checking account balance hovers around $300, she knows she's OK.

Any extra she diverts to savings, and she has been putting close to $200 per month in her 401(k). "I just send [money] away to savings before I get a chance to spend it," she says. "That's key with me."