Financial Decisions That Seem Smart on the Surface...But Aren’t

🔍 Deep Dive: 5 Money Moves That Aren’t As Good As They Seem

1️⃣ Opening Credit Cards Just to Boost Your Score

One major aspect of your credit score is your utilization rate—or how much of your available credit is currently being used.

And you might have heard this advice: open more credit cards to increase the amount of available credit. On the surface, yes you’ll see your credit utilization rate go down and your score go up.

But there’s more to it than that.

While your score might see a temporary bump, opening accounts you don’t need can create other problems:

• Each new application causes a hard inquiry, temporarily lowering your score.

• New accounts reduce your average account age, another major score factor.

• More available credit creates temptation to spend more.

• Additional cards mean more accounts to manage, and potentially missed payments.

• Annual fees can accumulate quickly, and it’s easy to forget to budget for these.

Better approach: Focus on the responsible use of the accounts you already have:

• Pay down existing balances to lower your utilization rate.

• Continue making on-time payments.

• Only open new accounts when you genuinely need them.

2️⃣ Travel Hacking Prematurely

What you see on Instagram: “I flew ✈️ business class to Paris 🎨 for free using credit card points! 💳”

What you don’t see: Multiple cards with annual fees, minimum spending requirements, actively shifting balances from card to card, and multiple hard inquiries. With this in mind, “travel hacking” isn’t quite the hack you think it is.

For the average person, travel hacking often leads to:

• Paying hundreds of dollars in annual fees for perks they rarely use.

• Attempting to meet minimum spending requirements by purchasing things they don’t need.

• Juggling multiple payment dates, and accidentally missing them.

• Damaging their credit when closing accounts to avoid renewal fees.

There are certainly some highly organized people who can make travel hacking work. But it takes a lot of effort, so make sure you know what you’re doing before going down the slippery slope of travel hacking.

Better approach: Choose a single credit card with rewards that already match your natural spending habits. Focus on consistently using that card responsibly, rather than constantly chasing new sign-up bonuses and travel points.

3️⃣ Depleting Cash Reserves to Avoid Financing

Depending on who you ask, conventional wisdom says: “Always pay cash for major purchases to avoid debt.”

While this advice sounds responsible, it ignores nuances like the importance of liquidity 💸.

For example:

1. You purchase a car outright for $30,000 in cash, and you empty your savings to do this.

2. A week later, your dog gets sick. Now you need money to pay the vet.

3. Your savings are drained, so you find yourself taking out a pet care loan to cover it.

Avoiding high-interest debt is wise—but depleting your savings to avoid low-interest debt isn’t.

Better approach: Maintain a 3-6 month emergency fund (or up to 12 months in a bad economy). For other purchases, create a separate sinking fund to save for it.

Consider financing for major purchases, assuming you can get a fair interest rate. Only pay in cash if you have enough to cover the purchase without draining your emergency fund.

4️⃣ Aggressively Paying Off Low-Interest Debt

Traditional old-school personal finance mentors like Dave Ramsey recommend paying off all debt as quickly as possible, regardless of the interest rate or type of debt.

But for young people with fixed rate low-interest debt like federal student loans, your extra income is better off invested in broad market index funds.

This doesn’t mean ignore your debt—always make your minimum payments. But mathematically, the optimal strategy might not be chucking every dollar you have against your debt.

Better approach: Prioritize high-interest debt (credit cards, personal loans, etc.) for aggressive payoff. For low-interest debt (less than 5%), consider making the minimum payments while investing your additional funds.

5️⃣ Having Too Much Cash Saved Up

Having a fully funded emergency fund? Great 👍

Having cash in a sinking fund for a short-term savings goal? Amazing 🤩

But having $250,000 in a standard savings account with no purpose? Not great 👎

It can feel comforting to know you’ve got cash set aside for unexpected expenses or a loss of income, especially in a bad economy.

But money sitting around in a regular savings account is actually losing value compared to inflation. That’s right, cash sitting in a regular savings account is actually slowly depleting whether you realize it or not.

Better approach: Have a 3-6 month emergency fund, and enough extra set aside for short-term savings goals (ex. purchasing a car in the next 6 months, or having a baby in the next 9 months).

Keep those funds in a high yield savings account (HYSA). Here are the top HYSAs in May 2025, by the way.

Don’t hoard excessive amounts of cash beyond that.

Put It Into Practice

1️⃣ Calculate what 3-6 months of essential expenses amounts to for your current lifestyle. Set that money aside in an emergency fund.

2️⃣ Think through your short-term savings goals, and keep cash set aside for those too.

3️⃣ Decide what to do with excess cash you have on hand: pay off any high interest debt off first, and invest the rest in broad market index funds.

💵 Budget Breakdown: A 25-Year Old Data Analyst From Boston

Today we’re examining the budget for a 25-year old data analyst in Boston, named Emma. She recently shared her May budget on TikTok, so let’s take a look.

Here are the numbers:

✍️ A few additional notes Emma shared about her budget:

• The month of May happened to include 5 paychecks because she’s paid weekly.

• She’s about to purchase a car, so her savings set aside are higher than normal.

• She has a medical bill to pay, thus the $800 health expense.

🙌 This is a great budget, and here’s why:

• She recently got a pay increase, bumping her salary up to $100k. Plus, she maintained her savings rate and didn’t spend all the extra income on non essentials.

• Despite this being a 5-paycheck month for Emma, she didn’t increase any of her recurring expenses based on this higher pay. Great discipline.

• The 50/30/20 rule says approximately 50% of your income should go towards your bills and other essential needs. She’s is right on par with this rule of thumb.

💡 Here are a few things I’d change:

• Emma’s not using the zero-based budgeting method. She mentions having $20 left over after budgeting. While that’s a small amount, assigning it a purpose in her budget would be even better.

• She rolls over money from previous months into her new budget. While this can work, it’s easy to miscalculate numbers and spend more than you have. Again, I’d recommend a zero-based budget for the most accuracy.

🔗 Quick Links

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