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Everybody makes mistakes when it comes to money – and billionaires are no exception.
In a new interview with MONEY, “Shark Tank” investor Mark Cuban and Spanx founder Sara Blakely, both self-made billionaires, discussed starting their respective businesses years ago with little money and tons of grit.
Blakely decided early on that she’d grow her company with only the cash she had on hand: “I’ve never really had debt – if I can’t afford it, I don’t buy it.”
Cuban, on the other hand, turned to credit cards.
“For me, the hardest lesson I learned was getting my credit cards ripped up,” said the Dallas Mavericks owner. “I would charge something and think I would be able to pay it off and then not be able to. I can’t tell you how many credit cards I had ripped up.”
But it didn’t take long for Cuban to realize “that debt was not my friend,” he said.
“Over time, what I’ve learned is using a credit card is okay if you pay it off at the end of the month. Just recognize that 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,” Cuban said.
He’s right – the opportunity cost of racking up high-interest credit card debt is immense. As MONEY explains, the average annual return for US stocks is 10%, 6% for government bonds, and 3% for cash.
If your credit card interest rate is higher – the average is 16.67% right now – you’ll save more by paying off the debt, or staying out of it in the first place, than you’d earn if you invested it.
“The key is living within your means. Saving money and putting some into a low-cost mutual fund – like an [S&P index] fund – and living as inexpensively as you possibly can, will pay off dividends,” said Cuban, who became a millionaire at age 32 after selling his first company.
Less than a decade later, he sold his second company, Broadcast.com, to Yahoo for $5.7 billion. His net worth today is $3.7 billion, according to Bloomberg.
“If you’re making $30,000 or $40,000 a year, it’s hard. But at the same time, if you can find a way to save, if you can find a way to invest inexpensively in the market, you can start to build your net worth,” said Cuban, who reached his first $1 million in part by learning to “party like a rock star, but still live like a student.”
Blakely, who is worth around $1.2 billion, agrees. “As my means change, maybe what I can spend changes, but I always keep that as my baseline. If I’m spending well below my means, I’m going to be in good shape.”