Ask Leigh Anything! (Here, now, do it!)

While #2 is enjoying pasta from the source for two weeks, we’re running guest posts.  Since it’s Friday, instead of Ask the Grumpies, we’re helping Leigh to introduce her new feature:  Ask Leigh Anything.  Leigh gives amazingly great financial advice and brings wonderful insight in comments when we discuss financial matters– I would trust her with any money question, and I’m curious to see her take on non-monetary questions as well. 

Here’s Leigh with more:
I am a late twenties software engineer who has been a personal finance geek since the age of 16. I’m not a CPA or a finance professional, just a normal person who has been lucky her passion career pays well and has built up her net worth significantly. I graduated from undergrad with $30k in the bank and no student loans thanks to lucrative internships and my parents paying for my degree. In the six years since I graduated with my Bachelor’s degree, I bought a car in cash and a condo with 20% down, built strong credit, maxed out my retirement accounts repeatedly, paid down my mortgage aggressively, built up my net worth to half a million dollars by age 26, my boyfriend moved in with me, and I am about to start my Master’s degree, which I will pay for with both cash and employer reimbursements.

I am happy to answer any of your financial questions! Whether it’s about how I did X or what you should do in Y situation.

You can post your questions here [in the comments section] or you can shoot an email to leightpf at gmail dot com.

16 Responses to “Ask Leigh Anything! (Here, now, do it!)”

  1. Kellen Says:

    Question – software engineers are in high demand right now. Is the feeling that this will still be the case in 5 years, or 10 years? I’ve been thinking about going back to school (although the potential major changes daily).

    • Leigh Says:

      I don’t really know and I don’t think anybody does really. It’s kind of hard to predict the future. The tech industry weathered the 2008-9 recession pretty well, but who knows if it will weather the next one just as well. It’s been growing so much lately that we all wonder when the bubble will burst some day, but for all we know, it could be twenty years from now.

      One thing I would caution though is that it can supposedly be harder to find a job as a software engineer as you get older, so I wouldn’t wait too long to go back to school if that’s what you want. Some places offer a “second Bachelor’s degree” in Computer Science program that only takes two years versus the normal four years for a Bachelor’s degree. Those might be worth looking into if that’s something you were interested in.

      • Kellen Says:

        Thanks! It seems like it can’t just go away entirely… we have plenty of stuff we can’t yet do with computers… But maybe all these recent grads will mean places don’t need so many new people eventually, especially old new people!

      • Leigh Says:

        And those are just the median incomes. In high cost of living areas and areas where tech is really in demand, they’re higher. In high cost of living areas, starting salaries out of college are definitely over $100k now.

  2. anandar Says:

    Since you gave such good advice to my big picture question earlier in the week, here is a little picture question as well: what advice do you have about how to decide where to save money in taxable investments, for medium term goals (like a sabbatical, or home reno)? I think I have a relatively high risk tolerance compared to other medium term goals because we do have separate general savings accounts in cash, and because the timing on these medium-term goals is flexible enough at this stage that we could postpone a year or two if the investment accounts were not where we like them. I particularly get confused about things like how much I should worry about taxes.

    • Ana Says:

      Good question. I’ve been wondering about this, too.

    • Rosa Says:

      If you assume capital gains taxes will stay roughly the same, and your tax bracket will stay roughly the same (not a bad bet for 5-7 years from now, maybe a bad bet for 30 years from now) you can estimate capital gains tax percentages pretty easily – this article is really good – http://www.marketwatch.com/story/capital-gains-at-what-rate-will-your-long-term-sales-be-taxed-2015-02-18. You can also probably open up your tax prep software and do a fake tax return assuming different kinds of investments, to see real numbers. Unlike management fees or transaction fees, the tax cost comes out at the end when you cash out the investment so you have to assume you actually sold at a profit to see the tax implications.

      This is not advice, we make our taxable/nontaxable investment decisions in a very lazy way (first 401k, then Roths, then other investments) with no math whatsoever. Leigh probably has more specific, knowledge-based advice.

    • Leigh Says:

      So, this really depends on your risk tolerance / flexibility on the goal. If you need the principal amount of your savings on a specific timeline, you shouldn’t invest in stocks unless you want to do this thing 10+ years in the future. Personally, I make a savings account for any goal I plan on doing in the next 5-10 years and let that build up. For example, right now I’m setting aside the cash to be able to do my Master’s degree full-time if I want so that I can quit my job if I’d rather do that. My partner, on the other hand, has no goals for the next 5-10 years, so he just invests all of his non-spending money into his retirement portfolio, which is a mix of stock and bond index funds. If he then wanted to say buy a car/house/pay for a wedding, he would just sell some of his taxable investment index funds or cash flow that goal when he came up with it. (Probably cash flow, let’s be honest.)

      How much you should worry about taxes depends on the dollar amount we’re talking about. Let’s say that you want to take a sabbatical in 5 years and you estimate that will cost you $100,000, so you decide to set aside $1,666.67/month. If you put that in a savings account, the most interest you would earn would be in the last year at about $703, for a tax cost of $197 if you’re in the 28% tax bracket. On the other hand, if you invest in stock index funds that appreciate 6% a year and spit off 2% per year in entirely qualified dividends, your tax cost would be structured like this:
      2015: $16.71 dividend, $2.51 in taxes. $25.05 in unrealized capital gains
      2016: $326.62 dividends, $48.99 in taxes, $875.67 in unrealized capital gains ($900.71 total)
      2017: $768.03 dividends, $115.20 in taxes, $2,193.30 in unrealized capital gains ($3,094.01 total)
      2018: $1,246.05 dividends, $186.91 in taxes, $3,620.24 in unrealized capital gains ($6,714.25 total)
      2019: $1,763.73 dividends, $264.56 in taxes, $5,165.57 in unrealized capital gains ($11,879.81 total)
      2020: $1,688.23 dividends, $253.23 in taxes, $4,965.03 in unrealized capital gains ($16,844.84 total)
      Assuming that your long-term capital gains tax rate when you go to sell is 15%, then you would only pay $2,526.73 in capital gains on the return. My point with this example is that I wouldn’t worry about taxes too much.

      The problem with stocks though is that you have no real guarantee of return of principal on any particular timeline. So they don’t work very well for short-term goals. One thing to consider though is to have say 20% of your amount be in stocks and the other 80% be in a mix of Series I Savings bonds (they keep up with inflation), savings accounts (for ease of depositing), and tax-exempt bond funds at Vanguard.

      I would try to invest in tax-efficient things outside of retirement accounts and to not sell too often to keep thing simpler. For example, Series I Savings Bonds, you don’t have to pay the interest until withdraw them. Tax-exempt bond funds, you don’t pay any taxes on their interest! But they can be lower yield. Vanguard’s Total (US) Stock Market Index fund generally spits out 100% qualified dividends (meaning that the dividends are taxes at your long-term capital gains rates versus your marginal rate like ordinary interest income is) and most of the gains are in appreciation, which isn’t taxed until you sell, and again possibly at long-term capital gains rates if you plan well.

      Another way to think about this is that your retirement portfolio is $X and your sabbatical/home renovations fund is $Y. Your retirement portfolio has say a 70/30 stock/bond ratio and your medium-term buckets have a 30/70 stock/bond ratio. If $X is say $250k with $70k being added per year and $Y starts at $0 and gets $20k added per year, then your overall allocation is really:
      Year 1: 68% stocks / 32% bonds
      Year 2/3: 66% stocks / 34% bonds
      Year 4: 65% stocks / 35% bonds
      (The retirement portfolio is much larger than the medium-term bucket, so the overall allocation is closer to that.)
      With this approach, you would invest your entire portfolio (retirement+medium-term) in the same funds and then when you want to withdraw, you would rebalance to get back to the target allocation.

      Or if you’d care about keeping the medium-term money separate, you could use Vanguard’s LifeStrategy fund that is 20% bonds, 80% stocks. It would cost more in taxes as its dividends aren’t all qualified and are higher, but it would help if you like the mental separation of different goals.

      Keep in mind I’m not a financial advisor, this is not advice, and I’m simply presenting some of my internet research and opinions!

  3. Elizabeth Says:

    Hello! This isn’t a financial question. It’s a career question. I am a new graduate in Chemical Engineering. I have a job that I was offered out of an internship last summer. It’s great, the team is nice and the pay is great (I am incredibly fortunate). But, I am ENTIRELY under qualified for my position. They hired me knowing this, but it is a little overwhelming. I’m struggling with learning everything and being the corporate “expert” (I’m not an expert, but I know more about the program than anyone else in the company) of a program that I used in my internship previously. The program (a data historian) is small scale now but is developing quickly (we aren’t creating the program but we personalize it) into a tool that will be widely used and integrated (scary!). Any suggestions on how to deal with being under qualified? Any advice is greatly appreciated! :)

    • Leigh Says:

      Have you heard of Impostor Syndrome? :) I’m sorry to say, but it sounds like that is exactly your issue: https://en.wikipedia.org/wiki/Impostor_syndrome I know because I have it too. I had an awesome GPA in undergrad, had the exact requirements for my graduate program and I still thought I wouldn’t get in!

      New jobs are ripe with impostor syndrome situations and it is TERRIBLE. I have been experiencing this this year. I’m pretty convinced I’ve been doing terribly at my job, yet they gave me a raise, bonus, and some more stock! So I guess I’m doing okay? I would find a female mentor who is a year or two ahead of you at your company and in a similar role and ask for feedback from your manager/supervisor regularly. Getting it just at annual reviews is not helpful with treating impostor syndrome!

      • Elizabeth Says:

        That is definitly something I need to consider. I’ll look into finding a mentor and see about having more frequent reviews. It says something that I spent an hour after reading your comment coming up with reasons I’m unqualified. And another while to actually click the link and read about it (I then spent a while reading about people’s experiences with it). It does sound like something I should be more aware of, and absolutely part of the overall problem. Thanks for the advice! :) I will be working on this! Although, I’m guessing this is one of those situations it is MUCH easier said than done. I was unaware that Imposter Syndrome existed or was a “thing”. It stinks that other people have that problem too! It stresses me out! A lot! Thanks again- I appreciate you taking the time to respond!

      • Leigh Says:

        Happy to help :)

  4. Rented life Says:

    A financial planner wants to meet with us. I’ve been putting off her sales pitch for months–home/personal/work life have all been too chaotic and every time I think it’s calming down something (or some one) throws it off and I just CAN’T process one more thing. But this is our long time cat sitter and we are friends with her parents so I figure we should just do a courtesy meeting and get it over…what kinds of questions should we throw at her?

    • Leigh Says:

      So. I try to not mix personal relations with finances at all. My parents have friends who are accountants, for example, but they don’t take their taxes to those people. I honestly would not meet with this person if it were me. I wouldn’t want my cat sitter to know anything about my finances.

      What do you want out of this meeting? That really shapes what you should ask.


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