credit cards suck

Alright. You’ve resolved to get your money life in order. I’m here to tell you what to do first.

At this point I know someone is thinking, “But But But Dumpster Doggy, we are all so very different, how dare you act as though there is a one-size-fits-all solution?” Sure, we are all special snowflakes. But even special snowflakes gotta clip their toenails and pay the bills, ya know? There are some money priorities that are pretty damn universal. Especially if your goal is to escape that paycheck-to-paycheck life and build real wealth.

I know that “building wealth” sounds kinda intimidating and out of touch. When I say “building wealth,” I’m actually talking about freedom. I am talking about putting ourselves in positions where we won’t have to work forever. Sometimes, it helps to reframe—from now on, think of “building wealth” as “building towards my financial freedom.” That’s where we should begin, and then do some reverse engineering from there.

When you’re feeling ready, here they are: Your financial order of operations.

#1 Pay off credit card (and other high-interest) debt and

#2 Build up an emergency fund (aka your “Oh-Shit Stash”)

Don’t feel shame if you have credit card debt, we ain’t got time for that. But there’s no pussyfootin’ around it, credit card debt is keeping you from building wealth. If you ultimately want to build financial freedom, you have to stop bleeding out interest on credit cards. Getting out of credit card debt must be priority numero uno. Before retirement saving, before homeownership, before investing. It’s not sexy, but it’s imperative.

The average APR (the interest rate you pay on borrowed money) on a credit card is 16%, compounded daily. Some cards charge a penalty fee of up to 30%! Credit card companies get away with highway robbery.

what should my money goal be

(Not historically factual).

16%. Let’s think about that. Could you potentially invest the money instead, in a home or in the stock market, netting out positive? Probably not.

What could you potentially earn through investing?

Well, stocks have returned about 10-11% over time, though we should downgrade our expectations moving forward. Maybe 6%? Maybe 7%? No one really knows. Home prices generally grow at about the rate of inflation (more or less), so like 3%. (But that rate of growth doesn’t account for all the money you dumped into the home through interest, property taxes, repairs, renovations, furnishing, etc.) Bonds are paying shit right now because interest rates are low. IN SUMMARY, there is no legal combination of investments that would earn you anywhere CLOSE to what you pay in credit card interest, including stocks, bonds, real estate, your antique thimble collection, Cabo timeshare, toast that looks like Jesus, and so on.

how to pay off credit cards

You’d have to get exceptionally lucky to invest your way out of credit card debt.

While you are paying down high-interest debt, start building up an Oh-Shit Stash for emergencies. Also known as an emergency fund or a “Fuck Off Fund,” famously named by Paulette Perhach. Start with $100, then $1,000, then enough to cover your car and health insurance deductibles. This is money that’s seriously for emergencies, and no, Jonas Brothers concert tickets don’t count as emergencies.

I’m not going to lie: It’s hard as hell to both save up a small emergency fund while paying off credit card debt. If you need to pick one or the other, no problem. Just make a decision, and attack like it like it’s a pack of Oreos after a long day at work. I’d personally work on my emergency fund first.

Logistically, you save this money in any account designated for savings, whether at your bank or credit union, or a “high-yield online-only” savings account. With the latter, you’ll earn a bit of interest on your money. But the most important quality of a savings account is that you use the dang thing. Do the work.

what money goal should I work on first 

#3 Automate Saving

Once the credit cards go bye-bye, the next step is automating your savings program. As investing big dawg Warren Buffett said, “Do not save what is left after spending, but spend what is left after saving.” It is so easy to ignore this simple advice, but don’t! Automating is a powerful way to take your impulsive brain out of the ongoing spending vs. saving battle royale.

Warren Buffett! Warren Buffett funny,

This way, you can begin to quietly and painlessly build up your Oh-Shit Stash. This is also a great strategy for other savings goals!

Ultimately, you’ll want to keep working on your Oh-Shit Stash until you have to six months’ worth of “stripped down” expenses saved in cash. Basically, you want that cute lil ass covered in the event that you get laid off from your job. (Which could happen to anyone, at any time, and could have nothing to do with your talent.) But you may want more or less given your personal situation. Considerations include: children, job security, or plans to leave a job, fallback support—family to help in an emergency? etc.

#4 Save for Retirement

Yup, saving for retirement slides into the next spot on our list.

“Before saving for a home,” you exclaim?! “But I need to buy a home much sooner than retirement!” Yep! Before saving for a home, you need to have a retirement savings structure in place. Why? Well, if all goes as planned and you live for a long-ass time, your retirement is going to be more expensive than your home! (Unless you’re like, Jay-Z or Jerry Seinfeld, whose home is worth at least 25 Dumpster Dog retirements.) If you can’t afford to save for retirement before or while you save for a down payment, you should be leery about your ability to save for retirement once you own a home. Homeownership is an expensive experience.

Think about it: You are going to live between the ages of 65 and 100 with no job and no income. That’s 35 years. And guess what? When you’re retired, you are going to have bills, and you will want to travel and treat your aging body well. Being old is expensive, and hopefully, it’s comfortable and fun as hell.

Don’t resonate with the word, “retirement”? Think of it as “financial freedom” or “financial independence.” It’s the freedom to quit your job and pursue the projects you want to work on. The freedom to take a risk, and start a business, or to chase a passion.
what money goal should I work on first

How much do you need to save each year? Well, that depends on when you want to retire. To retire by normal retirement age, you’ll need to be saving 15% and 20% of your income. Even if you can’t do 15% now, make it your goal. Start with 1% or 5%, I don’t care, but start with something! (In what type of account? Read here.)

Even 1% is a great start because you’re building the habit; you are making your retirement/financial freedom not just a priority but a non-negotiable aspect of your financial plan.

BONUS: If you’re traditionally employed, your employer may offer what is called an “employer match” in your workplace retirement plan, like a 401(k). That’s where they put money in when you put money in, and it’s often a really good deal. Do your best to take advantage of your full match. (If you’ve got a good match, you could consider bumping retirement up in your priority list….)

Once you have credit cards (and other high-interest debt), your Oh-Shit Stash, and retirement savings up and running, your financial framework is in place and you can start to think about the fun stuff: learning how to invest your money, vacations, homes, weddings, life upgrades, aggressively paying off student loans,and my personal favorite, a round of tequila shots for everyone in the bar.

what money goal to work on first

Does it always work out in this perfectly orderly way? Of course not. And I definitely don’t think you should deny yourself small pleasures along the way. All that matters is that you take one step forward, and hopefully, this helps you choose a step.

Ready to step up your game and learn how to invest? Take my Invested Development course. It’s Investing 101, but fun!