College is one of the most fun and exciting times of any young adult’s life. In many cases, you find that this is probably the very first time most students are on their own financially. You set your agenda financially in terms of spending. After college, however, the ball game is on a whole different level. Here, you’re likely managing a full-time job, repaying the loans you took out in school, and getting acclimated to life outside the safety and security of the campus. Because of that, many fresh graduates often make major money mistakes that may have repercussions spanning years. Here are some of these mistakes and how to avoid them.
1. Not saving enough
Many, throughout college, don’t have a saving culture. They spend nearly every dime on various expenses, often with the knowledge that they’ll get more money from their guardians. After college, most students are hit with sticker shock as they are establishing their new lives outside the college. Imagine an entire paycheck being decimated on regular expenses such as rent and utilities like transport. Graduates must create a strong culture of saving; monies which can then be used as an emergency fund or invested.
2. Blowing money
For graduates, a steady paycheck equates to new-found freedom and independence. For those with money doled out in a limited form, maybe in terms of financial aid, scholarships, or allowances, this money gives them a sense of autonomy that many like to push, ending up in unreasonable spending on recreational experiences or discretionary items. Since assets either appreciate or depreciate in the real world, spending your hard-earned cash on assets such as TVs, cars, and clothes might bring some happiness, but will do nothing for your financial well-being.
3. Neglecting your loans
Most students go through college using one form of financial assistance or another. These are often low-interest loans that have very generous repayment terms. However, most students, after graduation, ‘forget’ about these loans. As a fresh graduate, you should always look to factor your student loans into your budget. Financial experts highly recommend keeping your total debt and housing payments below the 36% threshold. Since these loans often have a grace period, take advantage of them, and make the payments a fixed expenditure, so that you can never forget to service the loan. If you do accrue more debt after graduation, always make sure you’re following up. Also, always watch your spending and don’t use the card when it’s not necessary. You can click here to learn more about debt management.
4. Not starting to save for retirement immediately
When you’re fresh out of college, retirement is the last thing in your mind. Since many think there will be plenty of time to save for retirement, putting money aside now might seem trivial. Since saving for retirement and its benefits aren’t highlighted in school, you have to figure out which retirement plan suits you best. You can work with an IRA, a 401(k), or both and start saving up from your very first job. When you get used to doing this, you’ll continue saving, even as you continue to create a higher profile in your career.
5. Ignoring your personal finances
Most young adults, after graduation, aren’t bothered with the state of their finances, provided they can pay for their expenses and not lack any of the essentials they like, and life goes on without a breeze. However, it’s high time you take more interest in your finances. This, in a nutshell, means taking an active role in how you manage your finances. That means learning about financial concepts and building healthy financial habits. You can start by creating a financial plan which can detail your short, medium, and long-term financial goals and obligations and how best to get there.
6. Spending too much money on housing
After college, you have to find your own space. Once people start having a regular paycheck, they might be tempted to get a lovely apartment even though it might be a bit pricey. Since you’ve probably just started on your new job, don’t be shy to start modestly. Since the most attractive jobs are in places with high housing costs, you can either look for a roommate or find a spot outside town with an easy commute. All-in-all, experts say your total housing expenses shouldn’t surpass 28% of your salary. Money saved on housing can be used on other expenses or saved for a rainy day.
7. Not paying your bills on time
While some cases are unavoidable, you should always endeavor to pay your bills on time. Fresh graduates think that a few missed payments here and there won’t hurt. But then, the reality is each of those missed payments, especially with financial institutions, damages your credit history. In your youth, good credit doesn’t seem that important, not until you need a significant loan. With poor credit, no financial institution will lend you a substantial amount of money, and if they do, the interests will be higher because of the risk involved. What might be the result of a few late payments can cost you up to seven years to fix up.
8. Avoiding credit
While there are fresh graduates who can’t stop using their credit cards, there are those who dislike them completely. The perception some young adults have is that credit cards are bad. However, in reality, they are a great tool if you can use them responsibly. After college, you must build positive credit because it will help you later on in the future when you’re looking to get a loan for a home, car, or business. Since credit cards can be very tempting to use, strive for a balance where you can use your card comfortably and also be able to pay it all off at the end of the month.
The world of adult finance can be tricky and a bit confusing for a fresh graduate. Take things slowly and build up your knowledge of finances. When you begin healthy financial habits from a young age, you’ll accomplish your goals sooner and without falling into pitfalls others before you did.
Image source: Peter Lundberg, via Flickr.
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