This article contains 8 financial mistakes new graduates should avoid. After you graduate from college, you’re in another phase of life. There is a world for you to navigate and at this stage, you are financially independent.
However, the way you approach financial planning after graduating will determine whether or not you’ll be financially secure.
8 Financial Mistakes New Graduates Should Avoid
Below are some financial mistakes you should avoid as a new graduate to prevent yourself from getting into pitfalls
When you graduate from college and start working, the urge to spend could be strong. Since you’ve started making money, you’ll love to dine out, shop for clothes, shoes, and accessories, and visit cinemas.
However, when doing all these, you should also be mindful of handling your finances. If you spend more money than you earn, it could quickly become a problem. So, there should be a limit to your shopping and the amount of money you spend when you go out. This will ensure that you start on the right financial foot after college.
Not Having a Budget
This is one major financial challenge for new graduates. While some do not have a budget, others find it hard to stick to it. However, with the help of a budget, you’ll know where your income is going. That’s because a budget splits your after-tax income into categories. And lets you see how much you should be spending on each category.
With a budget, you’ll avoid overspending on things that are not necessary and focus more on saving. Moreover, if you find it difficult to stick to your budget, then you should try switching to a new budgeting method. There are varieties of them.
Forgetting to Have an Emergency Fund
An emergency fund is a cash reserve you set aside for unexpected expenses. When you have an emergency fund, it will be very difficult for you to be caught off guard by when you’re faced with unplanned costs like an unexpected layoff at work or a flat tire.
The importance of having an emergency fund is non-negotiable. However, new graduates tend to be distracted and forget this. So, as soon as you graduate, start setting little money asides for a rainy day like on a weekly or monthly basis.
Forgetting Student Loan Repayment
It’s very easy to forget about your student loan after you graduate. However, you should be mindful that you have a period of grace to pay off those loans. So, as soon as you start working after graduating, find out details about your loan and the interest rate.
Also, find out the time you have till the loan terms run out. And make sure that you find out ways to pay those loans and include them in your budget.
Delaying Saving for Retirement
Your priority for working should be to have a secure and comfortable future in retirement. And to achieve this, you have to start saving for retirement as early as possible. As a new graduate, you might think that it is a bit early to start saving for retirement.
But the earlier you do, the more money you’ll have when it’s time to retire. So, avoid putting off saving for retirement till a later date. If you’re currently working and your employer has a 401(k) plan, you can take advantage of it. If not, then you can also participate in a traditional IRA or Roth IRA program.
Taking on Credit Card Debt
When you take up huge credit card debt as a new graduate, it could affect your financial future. Using a credit card has a lot to offer. It’s convenient especially when traveling or making purchases online. But while it has a lot to offer, it can lead you to financial pitfalls if you pile up more debt than you can afford to pay.
Not Being Concerned About Saving on Monthly Bills
At the end of every month, there are bills that people pay. From the internet to TV subscriptions, cell phones, and more. Moreover, while some of these bills are unavoidable, you can find ways to save on them.
You can bundle your internet, TV, and cell phone plans to save money. Also, you can check out data plan options with your smartphone carrier to see if there are quality plans at a cheaper rate. Every single piece of money you save on monthly bills can go a long way in paying off other debts like your student loan.
Ignoring Life Insurance
Purchasing a life insurance policy might not make any sense till you start having dependents. But taking it as a new graduate could have a significant benefit. That’s because life insurance premiums for a young individual tend to be cheaper than for a middle-aged or older person.
What Are the Biggest Money Mistakes That People Make?
The biggest financial mistake people make are
- Failing to have an emergency fund.
- Not saving consistently.
- Failing to plan for big purchases.
- Not saving enough and early in retirement.
What Are the 7 Most Common Financial Problems People May Face?
Some of the most common financial problems people face are
- Too much debt.
- Lack of budget.
- Poor credit.
- Loss of job/lack of income.
- Bad credit.
- Lack of savings.
What Are Some Strategies to Save Money?
Some strategies that can help to save money to achieve short, medium, and long-term goals include
- First, pay off your high-interest debt.
- Avoid making purchases out of impulse.
- Always pay off bills on time and in full.
- Establish an emergency fund.
- Cut off unused monthly subscriptions and recurring costs.
- Avoid using your credit card to pay your bills.
- Automate your savings.
- Use a variety of savings accounts.
- Be mindful of spending too much money on periodic purchases.
What Are Some Good Reasons to Save Money?
There are so many reasons people save money. However, some of the best reasons for saving money are
- To achieve financial independence.
- Planning for retirement.
- To buy a home.
- For medical emergencies.
- To build college funds for your kids.
- Purchasing a car or other big purchases.
- To live debt-free.
- For unexpected expenses.
What is the Biggest Money Mistake Youths Make?
Asides from failing to have a budget, the biggest financial mistake youths make is not saving for the future.