College graduation can open up a world of possibilities. As a new graduate, you may be eager to start building wealth and enjoying the benefits of financial independence.
However, with great power comes great responsibility, and it’s easy to make mistakes that can hinder your financial growth.
In this blog, we’ll explore the 11 most common money mistakes that college graduates make, and how you can avoid them.
Whether you’re just starting your career or looking to improve your financial habits, these tips will help you build wealth and achieve your goals.
So sit back, relax, and let’s dive into the world of personal finance!
1. No Emergency Fund
As you approach the next stage of your life, it is crucial to prioritize saving money for unexpected situations, especially emergencies.
You never know when your vehicle might require costly repairs, you may need extensive dental procedures, or even lose your job.
Because these unforeseen conditions can happen to anyone, it’s important to prepare for them in advance.
in place, you can feel more secure in the event of unexpected financial difficulties.
Make a firm dedication to establishing an emergency fund that can accommodate your essential costs for half a year.
You may consider opening up an interest-bearing savings account, such as an FDIC-insured MMDA, solely for this intention.
This approach will enable you to access the funds quickly while also providing little interest earnings.
By having this precautionary measure in effect, you will feel better protected should any unforeseen financial challenges occur you do not have to use your credit card and accumulate debt for unexpected situations.
Instead, you can feel at ease knowing that you are prepared to handle unforeseen expenses
2. No Monthly Budget
It is likely that during your college days, you had a limited budget and found ways to manage with very little money.
However, now that you are leading a more autonomous life, it is important to create and stick to a budget plan to regulate your expenses.
Before you dismiss all inexpensive food options like ramen noodles, ensure that you have adequate savings in case of an emergency
Before you commit to renting an apartment with a stunning view, it’s essential to establish a budget.
Start by calculating your essential expenses such as rent, utilities, food, and transportation costs.
These necessities take priority over your desires, like purchasing a new car.
Even if you have an increased income, it’s crucial to ensure that it will cover the higher cost of living. You may feel a strong desire to satisfy your desires, but it is important to remember that it is your money.
However, in order to begin building wealth, it is essential to make wise decisions
You should regularly examine your expenses to evaluate your progress and discover opportunities for cutting costs.
Several free applications, such as Personal Capital, Mint, and PocketGuard, can assist you in tracking your daily expenditures and reaching objectives.
3. Living Beyond Your Means
Prevent excessive or repetitive impulsive buying.
Overspending can result in severe financial consequences. Your aim should be to save money and invest some of your earnings by spending less than what you earn.
Although it may be simple to rationalize increased expenditures, it is important to ensure that some funds remain in your accounts following a year of laborious effort.
If you embark on independent endeavors, you may discover that your newfound liberty comes with a steep price tag.
Do not give in to the temptation of purchasing upscale work attire, a costly new vehicle, or indulgent holiday packages.
Falling into the trap of overspending may occur due to feeling deserving of a luxurious lifestyle and desiring instant gratification.
Alternatively, it could be influenced by seeing friends frequently frequenting upmarket bars and restaurants.
Avoid relying on credit cards to maintain an extravagant way of life that you cannot afford
4. Getting Rid of Your Roommate
Upon completion of your college education, the idea of cohabiting with another individual may not seem appealing.
Nonetheless, your lodging expenses shall constitute a substantial portion of your finances.
Do you possess the willingness to relinquish most of your labored remuneration to your property owner?
If you split expenses with a roommate who is not frequently around, it can result in significant savings.
These savings could provide you with financial freedom that you might not obtain otherwise.
While having a roommate may not have been in your original plan, paying for rent, utilities, and renter’s insurance alone could defer other monetary aspirations.
One example could be focusing on financial goals such as eliminating your student loan debt or setting aside money for a future home purchase
5. No Student Loan Repayment Plan
Your major new duty will involve ensuring regular payments towards your student loans.
Avoid procrastinating or delaying the repayment process.
Opt for the standard payment plan that entails making identical monthly payments over a period of ten years
Typically, a grace period provides you with six months to prepare yourself financially before having to make payments.
If you have the luxury of living at home or sharing accommodation with someone, it’s worth considering making payments as soon as possible.
It’s advisable to set up automatic debit payments by connecting your bank account and paychecks.
This may lead to a 0.25% reduction in interest rates over the course of specific federal loansThis is a cost-saving measure!
Managing numerous loans can be a challenging task.
It is recommended to put your payments from different sources in a spreadsheet for better organization.
If you have payments that are due on different dates, reach out to loan servicers and inquire if they can adjust the dates or distribute them evenly throughout the month for convenience.
On the other hand, you may consider automating all your expenses to avoid missing any payment deadlines
6. Ignoring Your Company Freebies
Have you considered the contents of your company’s benefits package? It holds valuable information about your financial prospects, but many fail to examine it thoroughly.
Various benefits contribute to the overall value of your compensation.
If you’re new to the company, it’s easy to miss important details while trying to comprehend everything at once
Aside from your entitlement to paid vacation, holidays, and sick leave, search for additional benefits such as flexible work arrangements, complimentary gym membership, financial assistance for professional development pursuits, smoking cessation programs with compensation options provided by the company, and student loan repayment programs which are advantageous to you personally.
There are important items in the package you received that require your immediate action, such as an employer-provided 401K plan which you may need to enroll in.
It is essential to carefully review insurance plans, such as health insurance, to fully understand their coverage details
7. Turning Down Free Retirement Money
Is it strange for a person who is only 22 years old to be considering retirement?
Actually, after familiarizing yourself with the location of the restroom in your new workplace, you should make it a priority to enroll in your employer-provided 401K plan.
This is because it is incredibly crucial. It’s better to begin contributing towards your retirement fund immediately, especially if your company offers additional monetary benefits.
Some companies enhance your productivity by matching some or all of the contributions you make.
By automating your contributions from each paycheck, you can simplify the process.
Contributing early and even in small increments can help boost your savings through compound growth.
This means that earning interest on your interest can significantly increase your growth over the course of 40 years or more.
In the long term, delaying will result in significant monetary losses.
Suppose you and your cousin both begin investing in a retirement plan.
Your cousin contributes $500 annually from ages 20 to 30, while you postpone your contributions and start investing $500 annually from ages 30 to 40.
Despite only investing for half as long, your cousin will have significantly more money saved at age 65 than you.
In fact, your cousin’s investment of $5,000 more over ten years will grow to $255,000, while your investment of $5,000 over ten years will only reach $130,000.
This example illustrates the power of compound interest and the importance of starting to invest early in life.
8. Skipping Health Insurance
If you are young and in good health, you may not usually worry about expensive medical bills from well-known doctors.
However, if you have an accident while skiing or playing basketball and need surgery, the cost could be very high if you do not have medical insurance
Individuals who are below the age of 26 are allowed to continue being covered by their parent’s healthcare insurance plan.
They may also qualify for a separate coverage scheme provided by their employer based on the nature of their employment.
It is important to carefully scrutinize the monthly premiums and deductibles associated with these options in order to gain a clear understanding of the overall cost and potential benefits provided by the healthcare coverage selected
9. Racking up Credit Card Debt
Although credit cards can offer advantages, they often lure college students and young adults into spending more than they can afford.
Using them can be enjoyable, but it is important to manage them wisely in order to avoid negative financial consequences.
While earning rewards such as cashback, airline miles or credit card bonuses is entertaining, being responsible with your credit is essential
In case you cannot afford to settle the entire balance, it is advisable to make timely minimum payments so as not to negatively affect your credit rating due to tardiness or non-payment.
However, if you solely fulfill the minimum payment requirement, you will accumulate a significant amount of expensive debt that will take longer to get rid of
Assume that you use your credit card to spend $1,500 on a vacation with an interest rate of 19%.
If you opt to make only the minimum monthly payments, which start at $60, it will take 106 payments to settle the debt entirely together with the accumulated interest. In total, you will end up paying $889 in interest alone.
That amount is over half of what you spent on the vacation itself!
10. Ignoring Your Credit Score
Constructing a favorable credit rating is important you may not have considered the importance of having a good credit score, but it requires considerable time and hard work to establish.
If you plan on renting an apartment, buying a car, or purchasing a home in the near future, having a solid credit score is essential.
Achieving your desired credit score may take some patience, but developing strong financial habits will aid in the process.
Check your credit report and keep track of your score regularly.
To begin with, it is important to establish your credit history.
You can do this by opening a few accounts that report to major credit agencies.
Additionally, if your parents have a good credit score, you can ask to be added as an authorized user on their credit card
Over time, your reputation as a borrower can be established by managing your payments efficiently.
Timely bill payments can improve your credit status.
It is advisable not to maintain a credit card balance which can escalate debt and be difficult to handle and can even lead to rejection of apartment lease applications
11. Delaying Investing
Many people, including myself, have the same feeling of remorse for not starting to invest earlier.
It is advisable to commence investments even for a small amount at present.
As young individuals have more time, it is necessary to utilize it effectively instead of squandering it away.
With a long-term investment outlook, one can sustain turbulent patches in the market without exiting prematurely.
The ability to compound can significantly amplify the returns on our investments
consider expanding your investments to individual stocks or other types of funds.
After creating a fund for emergencies and setting up automated retirement contributions, spare some savings to initiate a brokerage account purchase. Invest in an affordable index fund that observes the market.
This investment helps diversify your portfolio from the beginning. As you comprehend investment strategies and feel comfortable, broaden your financial assets by exploring stocks and other categories of funds.
You can widen your range of investment options by using your savings wisely, but it is important to be aware of and minimize any potential risks. Avoid making reckless decisions.
Final Thoughts
I hope this post has shed some light on common money mistakes that college graduates make and how to avoid them.
By following the steps outlined in this post, you can start building wealth and set yourself up for financial success.
Remember, making smart financial decisions early on can have a huge impact on your future. If you have any questions or additional tips, feel free to leave a comment below.
