Mark Cuban's Non-Negotiable Rule for Retirees Living on Fixed Income

You check your Social Security payment and see it land in your account, then a few days later your credit card minimum payment is due, barely making a dent in the balance. That pattern is far more common than many people would like to admit.

More than half of adults ages 50 to 64 carry credit card debt, and many older adults do as well, with some in their 70s owing thousands of dollars on balances that keep growing while their income no longer does.

Mark Cuban has built a multibillion-dollar fortune using a surprisingly simple money approach: spend less than you earn, avoid debt, and keep investing basic.

Here is why Cuban has been repeating one rule for everyone, especially for people trying to stretch retirement income.

Editor's note: Interest rate and credit card debt figures come from the Federal Reserve and AARP.

Cuban's credit card advice

Over the years, Cuban has repeatedly said that the first rule before investing is to get rid of lingering credit card debt. In several interviews, he has made clear that paying off credit cards should come before putting money into the market.

"The best investment you can make is paying off your credit cards," he told MarketWatch.

If you are carrying a balance at a typical rate of 22.36% on revolving accounts, eliminating that debt gives you a better return than stocks, bonds or rental property could provide on the same money.

There is no risk involved and no need to wait for markets to cooperate. Every dollar used to erase credit card debt effectively earns more than 20% right away, with no chance of a market drop wiping out the gain.

Cuban learned it the hard way

For Cuban, this is not just theory. In his 20s, before he had real wealth, he was repeatedly cutting up credit cards after charging things he assumed he could pay off but could not.

"The 18% or 20% or 30% you're paying in credit card debt is going to cost you a lot more than you could ever earn anywhere else," he has said.

That math is even tougher for someone living on Social Security or a pension. There is no salary increase ahead to outrun the interest, and no bonus waiting to wipe out the balance. The debt keeps compounding against a fixed amount that does not grow.

Spending discipline comes first

Cuban's other steady message has little to do with stocks or property. "You've got to have discipline in how you spend your money, first of all," he has said, describing the years he spent driving an old car and splitting rent with roommates even after he could have afforded more.

For retirees, that does not necessarily mean living without comfort. It means knowing your fixed monthly income and shaping every spending decision around it. That discipline helps keep you from using credit cards to bridge the gap between what comes in and what goes out.

Build cash before investing

Before putting money into the market, Cuban recommends having a sizable cash reserve, saying, "If you don't like your job at some point, or you get fired, or you have to move, or something goes wrong, you're going to need at least six months' income."

For retirees, a cash reserve is even more important. Six months of expenses in savings or a certificate of deposit can keep an unexpected roof repair or dental bill from forcing the sale of investments at the wrong time, or from pushing you into more credit card debt.

Keep investments simple

After the debt is gone and the cash cushion is in place, Cuban's investing advice is straightforward.

"Saving money and putting some into a low-cost mutual fund, like an SPX fund, and living as inexpensively as you possibly can, will pay off dividends," he has said, rather than promoting complicated products or individual stock picks.

A low-cost S&P 500 index fund spreads money across about 500 large companies, costs very little to own, and has historically rewarded patience over trying to outsmart the market. For retirees in particular, fewer choices, lower fees and fewer chances to make a costly mistake can make it the wiser path.

The bottom line

None of Cuban's advice is flashy, but it still applies whether you are just beginning to invest or are nearing retirement.

On a fixed income, there is no future paycheck to make up for a bad year. Paying off high-interest debt first, building an emergency cushion and then making simple, low-cost investments offers the best chance of avoiding unnecessary losses in retirement.

If you already have credit card debt, it may be worth calling your issuer to ask whether a lower rate is available. Many people have had success doing that. It costs nothing to ask, and even a smaller rate can reduce the amount you owe over time and help you pay off the balance faster.

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