Each year, millions and millions of people graduate college. If you are a recent grad, congratulations and welcome to the real world. Now that you are done with school (at least for now), you can search for a job, find a place of your own, and start spending money on the things you want. However, you are at a time in your life where your financial decisions and habits can have a profound influence on your future. Here are several financial mistakes to avoid after graduating college.
Putting Off Student Loan Payments
If you went to college, chances are you had some financial assistance. Maybe your parents had a 529 savings plan for you, or maybe you relied on some type of student loan. If you took on debt to go to college, you are not alone. In fact, there are approximately 50 million student loan borrowers in the US alone. The total outstanding student loan debt is at an astronomical high of $1.57 trillion. That is crazy!
One of the biggest mistakes you can make financially as a recent grad is pushing off student loan payments. It may be tempting not to pay considering there are some pauses on student loan payments and interest due to the COVID pandemic. However, this is short lived. Start paying off your loans as soon as you can. This will help you create the habit of doing so, which can then be applied to other loans in your future.
When it comes to paying student loans, every dollar counts. If you have a couple extra dollars in your budget for the week, put it towards your loans. You will be amazed at how quickly extra dollars can add up. This will be especially helpful if you took out a ton of debt. You will be surprised at how much interest you can accumulate on $50,000 or $100,000 worth of student loans. Some people are still paying off their student debt into their 50s! Don’t be like these people who should be focusing on retirement savings and their 401(k) match. Start paying your student loans now!
There are so many subscription services out there for literally everything. From random mobile apps to a plethora of streaming services, these and other types of recurring payments can be hurting your financially. Do you really need that wine of the month subscription?
One thing many recent college graduates do is to fill up their budget with these types of expenses. Some of them are necessary, such as rent, car payment, renters or auto insurance, and the like. Paying for an all exclusive vacation on your credit card should not be on this list.
Signing up for too many subscriptions, or overusing recurring/automatic payments for things is one of the most important financial mistakes to avoid after you graduate college.
Not Making a Budget
One of the best pieces of financial advice is to create a budget. You may not have had to do this in the past because let’s face it, college kids don’t have a ton of income or expenses they have to worry about. Once your start making real money and have expenses, your budget will become your best friend.
When one thinks of a budget, an excel spreadsheet probably comes to mind. Fortunately, this is budgeting of the past. There are a ton of great budgeting apps that you can use. Some of these apps can even link to your credit card and bank accounts. Linking your financial accounts to these apps can provide you with real time data. You can then use the app to track your expenses. These apps can also tell you how much of your income is going to specific types of expenses, like rent, entertainment, and take out.
Budgeting doesn’t have to be boring. If you use a budgeting app, you can honestly have fun. Creating a budget and sticking to it is something you really should do. If you have a budget in place, you will be able to determine how much you can spend on rent, and ways to buy a car that you have your eyes on.
One of the biggest financial mistakes to avoid is not having any sort of budget as a college graduate.
Forgetting About Retirement
Thinking about retiring may not be at the top of your mind. This is especially true if you just graduated college. However, a huge one of the financial mistakes to avoid is not keeping track of your retirement savings. I am sure you have heard the saying “It is never too early to start saving for retirement.” Well, there is a reason this piece of advice is so popular. Saving for retirement is key for young professionals looking to set themselves up for success later in life.
Luckily, there are many ways you can start saving for retirement early. First, if your employer offers this as a benefit, you can open a 401(k). A 401(k) is a savings plan with the sole goal of helping you save up money for retirement. These accounts are tax-deferred, meaning that you pay no income tax on the money you deposit.
If your employer doesn’t offer this benefit, or you are still looking for our first job, don’t fret. There are other retirement savings options out there for you. The most common one is an Individual Retirement Account, also known as an IRA. When it comes to an IRA, there are different types, for instance a Traditional or Roth IRA. Before you decide to open one of these, be sure to read up on the differences between a Traditional and Roth IRA.
Still looking for other retirement savings options? Well, there is an app for that. Thanks to the craze of technology enablement, you can take saving for retirement into your own hands. There are many ways you can start investing this way, and there are many apps to help you in this process.
Putting off saving for retirement is one of the financial mistakes to avoid at all costs. With the power of compounding interest, you can be potentially missing out on hundreds of thousands of dollars. The biggest factor in compounding interest is time, so start saving for retirement now!
Financial Mistakes to Avoid – Summary
Graduating college is an exciting time. You have your whole life in front of you. Set your self up for a strong financial future by avoiding several financial mistakes. These include not paying off your student loans, having too many subscription services, not creating a budget, and not saving for retirement.
Do yourself a favor and build healthy financial habits. The sooner you do this, the more likely it is that these habits will stay with you forever.