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1. Ditch the plastic

Don’t start investing until you’ve paid off debts (not including a mortgage), says best-selling financial adviser, author and radio personality Dave Ramsey, who runs personal finance hub Ramsey Solutions. Debts will hinder any investing effort, so get them out of the way so you can start putting 15% of household income towards retirement investments.

Credit card debt is crippling because it grows like a snowball. You are charged interest if you don’t pay your debt in full for the month.

That means the following month you will be charged interest on the unpaid balance. If the next month isn’t paid in full, you will pay interest on the interest. Before you know it, the snowball is at full speed, rolling down the hill.

For example, if a borrower has $5,270 on their credit card (the average balance as of the middle of 2022) and only makes minimum payments at a rate of 18.17% then it would take more than 16 years to pay it off, according to Ted Rossman, senior industry analyst for

“And [they] will end up paying a grand total of $11,875,” he says.

Also, the average credit card interest rate is higher than it’s ever been, just over 20% on average, according to data from the St. Louis Fed. Let that sink in.

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2. Pay off other high-interest debt

Next up, address high-interest debts such as car or student loans. Any interest that is 4% to 5% above the 10-year U.S. Treasury rate, which lately has been hovering around 4%, is considered high, according to My Money Wizard, a blogger who saved $100,000 by age 25 and whose goal is to retire in their 30s.

My Money Wizard prioritizes debt reduction over stock-market gains because of market uncertainty and the taxes that come with investment earnings. Also, being debt-free has its mental-health benefits.

3. In case of emergency

Plan for disaster with a contingency fund.

Many experts recommend three to six months’ worth of emergency fund savings, including Vanguard Personal Investors. Financial expert Suze Orman has long advocated for at least eight months.

The idea is to have a buffer available in times of crisis so that investments and credit cards remain off limits.

Vanguard says there may be times, however, when more than six months’ of savings is justified, such a looming recession, or when you’re in a high-turnover line of work and layoffs aren’t out of the question.

Just don’t save too much, says the My Money Wizard: “Permanently carrying a hoard of money for an unlikely once-in-a-lifetime event makes no sense at all. Especially when you factor in today’s abysmal interest rates.”

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4. Max out those retirement accounts

Many large companies offer a 401(k) matching program, which allows you to direct a portion of your pay into an investment account, with your employer matching 25% or 50% or even 100% of your contributions, allowing you to invest and grow your money.

“It’s free money,” says CPA Brian Preston, host of The Money Guy Show. “We’re talking about potentially thousands of dollars of benefits annually from your employer that people just aren’t taking advantage of. If you can make 50% or 100% guaranteed just by participating, you’re crazy not to do it.”

A traditional employer-sponsored 401(k) is funded with pretax money, which means any contributions made to it are not taxed until the money is withdrawn much later. A Roth 401(k), on the other hand, is an employer-sponsored retirement account that uses after-tax money. When the money is withdrawn upon retirement, no tax is paid.

The decision to max out a traditional 401(k) versus a Roth 401(k) is generally a question of how much a person expects to be making in retirement. If a person expects to be making less, the traditional plan has the edge. If they expect to be making more, the tax-exempt Roth has the advantage. The same applies to individual retirement accounts (IRAs).

5. Taxable brokerage account

It’s time to take a few risks you can afford to take.

A brokerage account provides the flexibility of retiring early or tapping into money you might need for a golden opportunity, says financial analyst Bo Hansen from the Money Guy Show.

Unlike your tax-deferred retirement accounts, a brokerage account will be subject to capital gains tax as it grows in value. But the upside is the brokerage account has the flexibility of allowing withdrawals at any time, without incurring a penalty in the form of taxes, which are assessed depending on how long the asset was held.

“After-tax money is liquid money you have easy access to… This is the stage where you can buy a nicer car, you can travel better,” says Preston.

You can also use that cash to create margin or opportunity.

“I load mine up with index funds and other things, and it’s still very easy to get access to it. It’s a great wealth-building tool,” he says.

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6. Pay off your mortgage

This one comes with a caveat. If a homeowner tapped into a low interest rate, it could make sense to invest in something like an index fund rather than pay down the mortgage right away, says My Money Wizard.

That’s because the stock market can usually outperform any 3% to 4% mortgage. But if the mortgage rate goes higher, then paying it down before investing may make more sense.

If you’re happier being completely debt-free, it could be worth it. Preston’s advice is to ask yourself, what is the “why.”

“I had a goal to be completely mortgage-free by 50,” says Preston. “The problem I have is I have a 2.5% mortgage and I only owe $200,000 on the house…. But the problem is my cash is paying me a little over 4.3%. You can see I have a dilemma.”

All things considered, It’s a pretty good dilemma to have.

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About the Author

Kerry Gold

Kerry Gold

Freelance Contributor

Kerry Gold is a long-time journalist. Based in Vancouver, she's written a weekly real estate and urban issues column for the Globe and Mail for the past 15 years. She is the author and co-author of several books, and several investigative pieces for the Walrus and other publications. Prior to her freelance career, she was an entertainment reporter and music critic for the Vancouver Sun.

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