In many cases, your financial status will change after you leave college and begin searching for a job. After graduating from college, most people start working and rent their first apartment. As a recent college grad, you need to avoid these common financial mistakes. Here are six financial blunders that fresh grads often make.
1. Not Budgeting in Advance
After college, you’ll have extra housing, transportation, and grocery expenses. To manage these additional expenses you will need you to track your spending and build a budget to satisfy all of your responsibilities. With a budget, you’ll know where your money goes and you will stress less.
If you’re unsure where to start, download a budgeting tool or create a tracking system. Understanding your finances and budgeting will help you spend wisely. NerdWallet reviewed the best budgeting apps here. Mint is a popular budgeting app that gets high ratings but just lets you track expenses after the fact rather than doing much in the way of planning. : Goodbudget is more about planning for your finances than tracking previous transactions. YNAB is also designed to help users plan ahead. EveryDollar is a free app offered by Dave Ramsey that allows you to track expenses.
2. Squandering the First Paycheck
When you land a new job within your chosen career field you may feel that you have arrived and go on a spending spree to celebrate. Nonetheless, think twice before blowing your entire income on the frivolities you’ve always wanted.
Expenses such as rent, electricity, and groceries should be prioritized before non-essentials. Also, it would be best if you kept a strict eye on your other expenses, including commuting (e.g., Uber rides) and meals out. For example, you can save money by browsing through several online used car websites rather than buying new.
It is crucial to consider less evident but critical expenses like developing emergency savings or having enough auto insurance coverage before splurging on “wants” versus “needs.”
3. Being Overly Optimistic about Entry-Level Pay
When you work in recruitment, one of the most shocking revelations for college graduates was that they would not be earning as much as their colleges stated. Not always… but often enough.
To offset this, recent graduates can investigate their local market to learn whatever the entry-level market rate is. For example, you won’t earn the same amount in Miami as in Paduka for the same employment.
4. Disregarding the Emergency Fund, You Have Set Aside
Don’t wait until tomorrow to begin saving for a rainy day. Even if you’re a frugal person, unplanned expenses may still occur. You should strive to have three to six months’ worth of living expenses in case of an emergency. Of course, you probably won’t start out with this cushion so you need to start building it right away.
Make sure you’re saving as much as possible now by looking at your budget. Hang on to your money as soon as you receive it, whether from a tax refund or spare change. To earn interest, consider depositing money in a savings account.
5. Debt Accumulation
Credit cards aren’t harmful if used sensibly. Using a credit card to pay for a lifestyle you can’t afford is among the worst things anyone can do after school. To avoid poor money habits, debt, and financial mistakes, you should understand how credit cards work to pay off the balance every month.
Creditors provide introductory 0% rate periods to recent graduates, but interest will soon mount, making it tougher to keep up with monthly payments and other obligations. If you have too much debt, this can be problematic.
6. Deferring Payment of Your Student Loan
It’s a foolish strategy to think that your college loan debts aren’t essential or that they can be ignored. They’ll stick around until you repay them. Place them at the top of your to-pay list, and pay in more than the bare minimum. Get these debts out of the way as quickly as feasible.
This will help you keep a favorable credit record and, maybe, raise your credit score. Good payment history and credit score might lead to more money-saving financial options down the road, such as cheaper house loan interest rates.
Closing Thoughts
It’s a nice feeling to be done with school. But that doesn’t mean you shouldn’t be financially cautious. When it comes to your financial future, the decisions you make in the beginning will have a significant impact. Start by keeping an eye on your expenses and work toward (or maintain) a debt-free status. That’s the most powerful way to approach your work life.
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