spending – Money Guy

Why Credit Cards Can Be a Dangerous Weapon (or a Powerful Tool)

Daniel May, CFP® — Thu, 12 Jun 2025 12:00:16 +0000

Some financial influencers say you should never use credit cards, while others believe credit cards can be a beneficial tool in your financial life. Are credit cards harmful or are they good? The truth is more complex than simply “credit cards are good” or “credit cards are bad.”

Take iPads, for example. iPads are an incredible tool that can be used for so much good: you can read books, watch educational videos from The Money Guy Show, create art, write articles, get in shape using fitness training apps or videos, and so much more. Just as much as iPads can be used to improve your life, though, they can be harmful. Maybe you use your tablet to watch 8 hours of mind-numbing television per day or have developed a sports gambling habit on one of many betting apps available on tablets.

Credit cards, just like any other tool, can be helpful or harmful depending on how you use it. Here’s how to use credit cards the right way, so they can be a valuable tool in your financial life, and what to avoid doing with credit cards.

Pros of using credit cards

Credit cards are usually the most convenient way to pay for a transaction. It is quick; all it takes is a simple tap or insert of your credit card chip into a card reader and the transaction is done. Long gone are the days of counting out the change in your coin purse or writing a paper check. One of the greatest “conveniences” of credit cards, and the biggest dangers, is that you don’t even need to have the money in your bank account to complete the transaction.

It costs merchants more to accept credit cards due to processing fees, and while some business owners charge credit card users more, the majority charge the same prices to both credit card users and those that pay in cash or cash-equivalents. This means that if you use cash or equivalents (like a debit card with no rewards) you are subsidizing credit card fees. The Federal Reserve has estimated that each household in the United States that uses credit cards receives an annual wealth transfer of $1,133 from cash users.

The benefits of credit cards go well beyond convenience and having cash users subsidize the prices you pay. Here are some other common benefits credit cards offer.

1. Fraud protection

Shop with a credit card anywhere you’d like a little extra protection. By law, your liability is limited to a maximum of $50 for unauthorized transactions, but most card issuers have zero fraud liability policies.

2. Points or rewards

Some credit cards offer cash back rewards that can be redeemed as statement credits or other cash equivalents. Others offer rewards that may only be redeemed for certain things, like miles for traveling or points for gift cards.

3. Extended warranties

Potentially one of the greatest features of a credit card is extended warranties. If you are making a big purchase, like an expensive home appliance or television, using a credit card with an extended warranty feature. This could help replace the purchase later down the road if something goes wrong.

4. Price matching

Some credit cards will price match items, which means if you make a purchase with your credit card and the price later drops, you can get a credit for the difference.

5. Insurance

Credit cards may offer travel or trip insurance that covers you if your flight is delayed or you use your luggage. Using a card with this feature can be great for frequent travelers.

Credit card pitfalls to avoid

Why would anyone not use credit cards? It’s the most convenient way to pay, you are essentially paying less for every purchase if you are receiving credit card rewards, and your card issuer may also offer benefits like price matching, extended warranties, and insurance. All of those benefits come at a price, though, and credit card companies aren’t operating out of the goodness of their heart.

The biggest pitfall is overspending. Studies show that people spend about 12% to 18% more, on average, when using credit cards. Credit card spending often doesn’t feel as “real” as seeing money come out of your bank account or handing over cash. Even if you pay your credit cards in full every month, you still might be spending more than you would if you weren’t using them at all. Credit card rewards and other benefits can make up some of the difference, but not all. If most Americans spend 12% to 18% more when using credit cards, it’s safe to say that most Americans would be better off not using credit cards.

Unless you have the excess income to cover credit card overspending, it will naturally lead to credit card debt. That sounds scary just to type; almost like a dentist warning you that not brushing will lead to cavities, tooth decay, and eventually, root canals. Credit card debt might even be less pleasant than having work done at the dentist.

Credit card debt is extremely harmful because it weaponizes compounding interest. Not only does it use compounding interest to harm you, the average interest rate on credit cards, at 24.20%, is substantially higher than you can expect to earn by investing in the stock market. Unfortunately, almost half of all credit card users carry a balance from month to month.

Credit cards can be financially beneficial when used properly, but they can be extremely damaging to your financial life if you carry a balance. If you have trouble controlling your spending when using credit cards, there is nothing wrong with foregoing the benefits of credit cards and using only debit cards. If you are an overspender and will carry a credit card balance, the benefits of using credit cards pale in comparison to the harm that carrying credit card debt can cause.

How to Balance the Trade-Off Between Current Spending and Future Retirement

moneyguy2023 — Mon, 20 Nov 2023 17:00:39 +0000

Investing more for retirement means you are spending less now. What’s the point of investing so much now when you may not be spending much at all in retirement? Isn’t it better to spend more now and enjoy life a little?

Want to know what to do with your next dollar? You need this free download: the Financial Order of Operations. It’s our nine tried-and-true steps that will help you secure your financial future.

3 Things You Use Everyday That Are Costing you THOUSANDS!

moneyguy2023 — Fri, 22 Oct 2021 13:59:19 +0000

Don’t let compounding interest work AGAINST you!

This episode is full of examples showing how small shifts in your thinking about everyday, necessary purchases can have powerful results. Whether it’s your Netflix subscription or your mortgage, we’ll show you how to assess which changes you should make to your spending habits to get the most out of your army of dollar bills while still enjoying your life.

In this episode, you’ll learn:

How powerful your dollars are at your specific age
Why large purchases are more of a threat to your finances than your lattes
How to maximize the money you save on budget changes
Where to find another $1.7 million for your retirement fund

Research and resources from this episode:

Small Financial Decisions Can Make a Huge Difference

The Money Guy Show — Fri, 24 Jul 2020 13:00:00 +0000

The “latte effect” describes spending money on small things that have little to no impact on our lives. The concept is true; small amounts of money spent on a regular basis can cost us more than we can imagine over the long run. If you bought a $5 coffee every single day from age 18 to age 65, that coffee would cost over $85,000 in total. Compounded at 10% annually, that cup of coffee now costs almost $2 million.

Should I never drink coffee again?

The latte effect is often misconstrued. Small purchases, like a cup of coffee, can make a big financial difference over time. But these small purchases might help get you through the day, and they might be worth it to you. As Brian has said on the show many times, the goal is to be saving 20 to 25% of your income, and if you got a late start or have ambitious goals, you may need to save even more. Once you hit your target level of saving, do you really need to keep cutting small purchases that bring you joy out of your life?

If you are struggling with debt or are having trouble making ends meet, you should absolutely take a closer look at small purchases, like coffee or eating out or other little splurges throughout the month. Controlling these small purchases will allow you to save more for the future, and eventually reach your financial goals. At a certain point, though, you need to give yourself permission to spend. Accumulating money for the sake of accumulating money is not fun; you need to enjoy your money, too.

What are you saving for?

Everyone needs a reason to save for the future. Without a reason, you will likely find it difficult to save much at all. Maybe you are saving for an early retirement, for the ability to spend more time with your family, for your dream home, or maybe you save for retirement so you can get a coffee anytime you want without thinking about it twice. Discovering your reason for saving money will help you determine what to do with the money you saved; after all, you probably aren’t saving money indefinitely. At some point, you’re going to spend your money, and you should consider what type of future you are saving for. Understanding your “why” will help keep you motivated to save.

When can I have “permission to spend”?

The younger you are, the more time your money has to grow, and the more powerful every dollar is. Every dollar saved at 20 could turn into $88.35 by age 65, with a 10% annual rate of return. Unfortunately, the younger you are, the less money you probably have available to save. Those small purchases, like a cup of coffee or a takeout meal, make an even greater difference when you are young. If you are younger and struggling with saving an adequate amount for retirement, it may be a good idea to cut some discretionary expenses out of your life.

As you get older, you’ll likely make more money. You might not be paying off student loans anymore. Your discretionary income is normally higher the older you get. If you are on-track for retirement, savings-wise, it may be fine to spend more money on the little things. Things that might not do anything for your long-term happiness, but can add a little bit of joy to a day.

The three ingredients of wealth creation are discipline, money, and time. Discipline often means making tough decisions about what to spend money on, such as foregoing creature comforts like coffee in order to put a little extra in your retirement account every month. Splurging on small “unnecessary” expenditures doesn’t necessarily make you an undisciplined spender, though; it might just mean you’ve reached a point in your financial life where you don’t need to think twice about small purchases.

On our latest show, we discuss this so-called “latte effect” and if your daily coffee is actually wreaking havoc on your financial life. Watch our latest Money Guy Q&A, “Can Coffee Really Ruin Your Finances?” on YouTube below.

Why Americans Are Bad With Money

The Money Guy Show — Fri, 21 Feb 2020 14:00:00 +0000

The average person, unfortunately, isn’t too good with money. 78% of American workers say they’re living paycheck to paycheck, and 60% of the population wouldn’t have the savings required to pay an unexpected $1,000 expense. The United States is one of the wealthiest countries in the world and has a high standard of living, so why are there so many people that have trouble paying their bills and getting ahead with money?

High Spending Rate

It’s no secret that many Americans have trouble keeping their spending under control. The average person spends about $18,000 per year on non-essentials. The top non-essentials Americans spend money on include eating out, alcohol, subscription boxes, cable, apps, and online shopping. If people cut back on discretionary spending, they would undoubtedly be doing better financially. They’d probably even be able to come up with $1,000 if they had an emergency.

We think people should enjoy themselves, and spend money on things they enjoy. However, you must enjoy your money responsibly. If you’re living a lifestyle you can’t afford, you must make cuts to improve your financial health. Sacrifice a little bit today for an abundance in the future.

Fear of Budgeting

We don’t talk about budgeting often on the show, but everyone needs a budget starting out. Think of a budget like training wheels; it’s necessary for you to learn how to ride a bike, but only temporarily. There are many free tools out there for budgeting – you can use apps, software, or tried-and-true spreadsheets.

At a certain point, it will be time for the training wheels to come off. Eventually managing your money will become second nature, and you won’t need an app or a spreadsheet to tell you what you can or can’t afford. Until that time comes, though, don’t be afraid to use a budget to your advantage.

Big Spending Mistakes

Costly financial mistakes can keep you broke. The average American household owes $8,398 in credit card debt, and the average credit card interest rate is 17.30%. 1 in 3 Americans who trade their vehicle in for a new one are underwater on their car. 38 million Americans spend more than 30% of their income on housing, a sharp increase from 16 million in 2001.

These mistakes aren’t small. Credit cards, cars, and houses can completely derail your financial life, and “mistakes” like buying coffee everyday or eating out too much don’t have nearly the same consequences. Over time, small vices like eating out more than you can afford add up, but their impact is incremental and spread out over time. Buying a car or house that you can’t afford has immediate and lasting consequences, and will have a ripple effect throughout your entire financial life.

Practicing deferred gratification can be a cure-all for many money woes you may be experiencing. Get in the habit of postponing a little bit of happiness today with the hope of much greater happiness and abundance in the future. If you haven’t already, stop making mindless purchases. Consider what value an object will give you before purchasing; if it just gives you brief, momentary happiness for a few hours is it truly worth it? Depending on the stage of life you’re at, that answer may be yes. If your answer is no, your future self will thank you if you defer a little bit of happiness until tomorrow (or the next day, or the next…).

Our most recent show, “3 Reasons Why Americans are Still Broke,” is available to watch on YouTube below. Bo and Brian discuss what mistakes many Americans are making money, why that’s (unfortunately) not likely to change, and what you can do to set yourself apart.

3 Signs You’re Ready to Live Like No One Else!

moneyguy2023 — Fri, 07 Feb 2020 12:00:00 +0000

Ever wish you had permission to spend guilt free?

As financial advisors, people expect us to advise on saving money and spending less, but one of our favorite parts is being that voice of reason and letting people know when they can take their foot off the brake and start living like no one else! Let’s walk through 3 surefire signs that you’re ready to start spending a little more on the things you love. We cover financial priorities, making memories, and keeping your life balanced.

In this episode, you’ll learn:

What boxes to check before you splurge
How much you should be saving and investing each year
Embarrassing ways The Money Guy team has saved money
The mentality that makes millionaires successful
The downsides of living like you’re broke (when you’re actually rich!)

Research and resource in this episode:

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12 Days of Saving this Holiday Season

moneyguy2023 — Fri, 23 Nov 2018 17:00:35 +0000

Ever wonder what the 12 days of Christmas cost? Well, we did too! Today’s episode is inspired by PNC Bank’s Christmas Price Index. For 35 years, they have calculated the prices of the twelve gifts from the classic carol “The Twelve Days of Christmas.” The result is the PNC Christmas Price Index, a unique and whimsical holiday tradition that makes learning about the economy fun.

In addition to covering PNC’s Christmas Price Index and inflation, we also wanted to relate these twelve traditional gifts to financial tips and recommendations we think you ought to take care of before 2019 gets here. We are only a few weeks away from a brand new year, and there are certain financial matters that are better to address in the current calendar year.

Money Guy Show family, it is officially “Merry Christmas” time. Join us for today’s episode of The Money Guy Show as we uncover the 12 ways you can save this holiday season!

Here’s What You’ll Find Out in this Episode:

How much the traditional twelve gifts of Christmas have increased in cost due to inflation
12 ways you can save this holiday season
Why now is the time to review your charitable giving strategy and ways to give in light of the new tax laws
How to turn lemons into lemonade with tax loss harvesting as a result of recent market performance
Why it is a good time to pay attention to upcoming Capital Gain Distributions of your Mutual Funds
Which retirement accounts you should max out before year-end
Contribution limits you should be aware of in 2019
Why you need to be aware of SALT limits in your state and when it makes sense to pay your estimated tax before 2019
Why it’s the time to review and update your budget and how to assess if you need to do anything differently in 2019
The one thing you definitely don’t want to do this holiday shopping season so that you don’t get into trouble that follows you into 2019
How to start an important financial tradition of preparing a net worth statement
How to re-evaluate your insurance needs and make sure you have adequate coverage
How to hone those shopping ninja skills
What low-lying tax deductions you need to take care of
Why you can’t forget to use your FSA dollars
Look to see if you get a state deduction for your 529 Plan contribution
Make sure your required minimum distributions (RMDs) have been distributed
How to set financial resolutions and planning goals for 2019

Resources Mentioned in This Episode

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If you have any questions/suggestions/comments/concerns (or just want to say hi!), feel free to reach out to us: brian@moneyguy.com and bo@moneyguy.com. You can also join the conversation on Facebook or connect on Twitter @MoneyGuyPodcast.

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The Worst Mistakes You Could Make With Your Money, Part 1

moneyguy2023 — Fri, 15 Jun 2018 18:00:06 +0000

There is an old saying that goes something like, “Mistakes are the best teachers.” And while this is undoubtedly true, perhaps we can all agree that learning from other people’s mistakes when it comes to our finances is way better than making them ourselves.

In this week’s episode of The Money Guy Show, we’re doing just that! We are peeling back the curtain on the worst possible mistakes you could make with your money so that you can hopefully avoid making them in your own life. Heed the warnings of those who have stumbled before you so that your path to financial independence can be smoother sailing.

Here’s what you’ll learn in today’s show:

What ‘not-to-dos’ in your 20s that have the biggest ripple effect on your future finances
Why not taking these risks at the beginning of your adult life may come back to haunt you later
Which investment vehicle you should prioritize getting your money in as early as possible
How many hours you need to build up enough ROI-producing expertise in your career
The debt you need to keep in-check for it to deliver the highest value in your financial life
Why you don’t want student loans to exceed 8% of your gross income
The biggest mistakes you could make in your 30s
How divorce can impact your personal finances
The questions you need to ask yourself in your 30s because if you ask them in your 40s it may be too late
Why carrying these types of insurances are necessary
How to avoid the trap of complicated finances because you think it’s part of adulting
Why owing leads to a cycle of faking financial success and delays your actual financial success
Why you can’t afford to procrastinate in these areas of finance any longer
The responsible thing you may be doing that can derail your financial security and how to prioritize appropriately

Resources mentioned in this episode:

Tune In and Go Beyond Common Sense with the Money Guys

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If you enjoyed this episode, be sure to join our community! You’ll get immediate access to 15 of our most recent shows, plus you’ll get future podcasts delivered straight to your inbox so you can get in on the action right away.

What Wealthy People Know About Spending Money

moneyguy2023 — Fri, 01 Jun 2018 18:00:20 +0000

When is it OK to spend money? It’s very common for people who prioritize building wealth to shudder at the notion of spending it. After all, we as a tribe have self-selected out of this culture of consumerism and embraced a lifestyle of forced scarcity to help us reach financial goals and, ultimately, financial independence.

But spending money isn’t inherently bad. In fact, once you get to a place where your net worth is increasing faster than your income, you have likely reached a critical tipping point in your financial journey that allows you to start making a transition from saver to spender.

Tune in to this week’s episode of The Money Guy Show as we give you clear direction on what, when, and how you can spend better and still stay on your path to building lasting wealth.

Here’s what we cover in this show:

The guardrails and filters you can use to spend wisely when you’re just starting out to get on the right track
How to spend money on the essentials like housing and transportation
- What your total transportation costs should be in your 20s vs when you have increasing net worth
- Main things to think about before making a luxury car purchase
- The downpayment and the percentage of income your housing costs should stay within in your 20s vs 30s and beyond
- How to understand your ‘why,’ the primary motivation for buying your house, and the role it plays in your purchasing decision
- The ongoing housing costs every homebuyer should be aware of and consider before selecting your forever home
What you need to know about spending on the “non-essential” items of life that tend to cause the greatest amount of guilt
- How to manage the push and pull of saving vs spending
- How to set grounding principals for non-essential purchases
- What you can do to successfully plan and enjoy travel
- Furniture is disposable and why this can help you make money-smart decisions when buying it
- When you can buy the “toys” without it being a financial mistake
- Why it’s better to rent vacation property than own vacation property
How to understand where you stand financially and how powerful this knowledge can be in your life

Resources mentioned in this episode:

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This show would not be what it is today without the support of our wonderful listeners. We strive to continue making the show better, and your feedback is an important part of that process.

How to Be a Retail Rambo this Black Friday

moneyguy2023 — Fri, 18 Nov 2016 21:23:19 +0000

Black Friday is coming and we want to prepare our listeners to be judicious spenders and maximize your hard earned dollars this holiday shopping season. In this episode of The Money Guy Show, we walk you through how to avoid the Black Friday gimmicks and get the greatest bang for your buck. Hold on tight, because we cover a lot of ground in this fun segment of our podcast.

Being a ‘Retail Rambo’ on Black Friday means that you’re zeroed in on the right deals and incentives to save an extra 3% to 20% more than other shoppers out there. It also means that you won’t be lured or fooled by the illusion of big savings that don’t really exist. If you’re a fan of The Money Guy Show, chances are a saver first and spender second. Well, just like we encourage forced scarcity and moderation when it comes to consumption, we carry these same principles with us on Black Friday. We want to make sure your money is stretched as far as it possibly can to get the greatest value for the items on your holiday wish list this year.

Ready to save big this holiday season? Here’s what we cover in today’s packed episode:

How to spot a Black Friday scam and avoid it
Understand retail tricks and determine which ones are worth your time
What needs to be in your shopping ‘tool belt’ this shopping season to save big
What “Off Brand Clowns” are and why you should be wary
Door Busters: Good deals or just bait?
How to know how much you’re actually saving (despite what the shiny sticker says)
Price steering and price targeting: What you need to watch out for
Must-have research tools to help you compare product prices across multiple retailers
The 3-step online shopping strategy that offers you a triple plan of attack on the best deals
In-store savings strategies that work to save you even more money
How to most efficiently spend your money this holiday
Ways to effectively leverage credit this season for more savings

Resources We Mention in this Episode:

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This show would not be what it is today without the support of our wonderful listeners. We strive to continue making the show better and your feedback is an important part of that process.