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Don’t Invest In Yourself Until You’re Debt Free

I’m a bit of a social media junkie.  That is to say, my Twitter feed is more alive and buzzing than a bee hive.  My Twitter feed is completely devoted to personal finance so that I can keep on top of new developments within the industry and bring you the latest information possible.

I also have one off people in my stream primarily devoted to entrepreneurship because, as you know, I believe that a small business can be the key to financial success.  Anyway, one such individual who I follow is Mark Cuban.  For those of you unfamiliar, Mark is an American businessman and investor who owns the Dallas Mavericks and a host of small companies.  He also appears on the show Shark Tank as a shark investor.

The other day I bumped into this tweet from Mark Cuban that I felt the need to talk about.

https://twitter.com/mcuban/status/492019723207331840

Don’t invest in yourself until you’re out of debt?! I felt the need to tell Mark that he was wrong because, you know, he was! That’s not to say that CNBC is where everyone should head to for financial advice either.

Does anyone out there have a student loan?  Average balances are heading towards as of this year.  It will take the average person with student loan debt 10 years to repay that amount.  So, hypothetically, you leave school at 22 with this debt and you’re not free of that debt until you’re 32…and that’s just student loans.  So you won’t start saving until you’re 32 years old.  What a waste of time and compounded interest.

Seriously though, if you’re waiting until you’re out of debt to save, even a little, like in let’s say a 401(k) plan, you are wasting years worth of progress that you could have made. Let’s use me as an example.  I’m not even going to go back 10 years.  I’m just going back about 5.  In the time that I have had this blog I’ve gone from having just a massive debt and owning nothing to owning 2 rental homes (one outright) and a retirement portfolio that was about $40K to one that keeps hitting 6 figures and then falling back depending on how the stock market is doing that day.  That’s in 6 years.  Inhale that for a moment.

Could I have repaid my debt? Hell yes, but had I devoted 100% of my income to debt servicing, I would not have been able to take advantage of the great deals that I got with the rental properties that has contributed to an increase in my net worth and added a second income stream.  Investing in myself while servicing my debt was the smartest thing that I could have done because it has put me on a path that will help me for a lifetime.

Now, in Mark’s defense, he might be referring to investing in the stock market and forgoing debt servicing at all. Clearly, any idiot with a brain knows better than to do that, but do keep in mind that even the mutual funds in your retirement accounts have investments in the stock market.

Bad advice can happen to good people. Don’t fall for it.

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11 thoughts on “Don’t Invest In Yourself Until You’re Debt Free

  • Interesting. It’s hard to get the full context of CNBC’s reports and what some of Mark’s assumptions might have been from a single Tweet. I think Cuban has a great approach to finance so I have to believe that there’s probably more than could be captured in the single line. Also, as you showed, there’s not going to be one piece of advice that’s the best strategy for everybody.

  • I agree with Money Beagle.

    I definitely like your approach Sandy, but there is something to be said about Cuban’s approach as well.

    I think it would have been best tweeted as, “pay off your debts while investing in yourself. Then the stock market.”

    My point, the stock market will make you rich, but investing in yourself will make you wealthy. Sure, you have stocked away 6 figures in your 401k but imagine stocking that 6 figures into one of your companies–freeing up your time.

    For example, hiring a blog writing service for one of your niche sites. Or investing in more real estate that will build you a million dollar portfolio in 10 years. Or spending a couple of hundred or thousand dollars to learn how to start an online business or co-found one with others? All of these ideas takes money but has the potential to go much further than variablity of stock marketin investing.

    401ks? One’s own choice. Probably best for the folks who are not like you and I. We have a passion of entrepreneurship and a strong drive of selling our creations come to life.

    • You’re right, you’re right. There are different levels of investing in oneself. Certainly most people would NEVER take the risks that you and I are willing to take, and definitely, any of my millions of ideas and ventures could be the one that leads to wealth.

      Were I not servicing debt, yes, I could be free to invest a lot more time in any of my ventures since my entire cost of living would decrease significantly.

      Thanks for the other viewpoint.

  • I am with you completely on this one. There are no absolutes when it comes to the decision of investing vs paying off debt, and the interest rate plays a big part in this decision, even though Mr. Cuban didn’t factor that into his advice.

    The closest thing to an absolute has to do with taking the match on your 401k. It may not be every single situation where it is best to invest enough into your 401k to get the match, but it is close to every situation.

  • I disagree with you. Pay off debt, then save for a house, buy with cash then invest. That’s the track I’m on and it’s the smarter move. Less risk should you lose your job and more stability.

  • Investing in yourself tax-free (401K or trad’l IRA) to take advantage of compounding and to lower your taxable income seems a great move–especially if we are talking about servicing debt using 0% balance transfers and other moves. It doesn’t equate to the same money coming out after the paycheck is cut, so there’s an effective magnification of the money right there. I’ll say this, too. A lot of people think, “I’ll pay off debt and then start saving,” and I wonder if they don’t go into the pay off debt, rebuild debt, pay it off, cycle. Starting a savings before the debt is gone gives you a taste of what wonderful things could happen with your money if it was ALL going to investment instead of debt balance payoff! I’m agreeing with Sandy here, I guess.

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