Congratulations! Congratulations! This is both an exciting and frightening new chapter.
For the first time, you will be earning a lot of money. However, this also means that you will be paying adult bills.
Avoid the common financial mistakes that college graduates make before you buy a car or sign a lease. Our list of financial mistakes will help you to achieve a financially sound future.
- No Emergency Fund
It’s important to start saving money for emergencies in this new phase of life. You may find that your car needs a repair or that you require expensive dental work.
It’s important to prepare for these unexpected events.
You can open an interest-bearing savings account like a FDIC insured money market deposit account (MMDA) just for this purpose. For this purpose, you can open an interest-bearing account such as an FDIC insured Money Market Deposit Account (MMDA). The money will be easily accessible, and you’ll earn a small interest.
You won’t need to use your credit cards or accumulate debt in order to cover unexpected expenses. You’ll feel more secure knowing that you are prepared for unexpected expenses.
- No Monthly Budget
You probably lived on a tight budget in college. Students find ways to save money.
You need to keep your expenses under control now that you are more independent. Do not throw out your ramen noodle stash until you’ve set up an emergency fund.
Do not sign the lease for that stunning apartment with the breathtaking view before creating a budget. Calculate your essential expenses, such as rent, utilities and food. You should prioritize your needs before you start thinking about your wants, such as a new car.
Your income may be higher than ever before, but it must still cover your increased cost of living. You may be tempted to give in to your wants. Your money is yours. You need to be smart to begin on the path to wealth.
Regularly review your spending to find out how you are doing and possible cost reductions. You can use free apps such as Personal Capital, Mint and PocketGuard to track your spending.
- Taking on More Than You Can Afford
You may be surprised to find that your independence is expensive. Stop impulsive or large purchases. Financial disaster can result from living beyond your means.
Spending less than what you earn will allow you to save and invest some of the money you earn. It is easy to justify spending more, but you need to leave some money in your account after a year of hardwork.
When you want instant gratification and feel like you deserve to live a luxurious life, you may overspend. You may overspend if you feel entitled to a high life and seek instant gratification.
Refrain from buying designer clothes for your job, a new expensive car or going on lavish holidays. You shouldn’t use credit cards to fund an expensive lifestyle when you cannot afford it.
- Get Rid of your Roommate
You may not want to live with another roommate after graduating from college. Housing costs will be a large part of your budget.
Are you willing to give your landlord a large portion of your paycheck?
You may not have planned to share a room with someone, but by paying for rent, utilities and renter’s coverage, you could be delaying other financial goals, such as paying off student loans or saving up to buy a home.
You may not save much by sharing expenses with your roommate. These savings may give you financial flexibility that you would not have otherwise.
- No Student Loan Repayment Plans
Regular student loan repayments will be one of your biggest new responsibilities. Do not delay paying your student loans.
Choose the standard repayment plan, which includes equal monthly payments for up to 10 years.
You will usually have a grace period of six months before your payments are due. Why not begin making payments immediately if you live with your parents or roommates?
You should link your pay stubs to your bank account so that you can schedule automatic debit payments. You may be able reduce the interest rate on certain federal loans by 0.25% over the course of their lifetime. This is saving money!
Multiple loans can make life complicated. Organize all your payments into one spreadsheet.
Contact the loan servicers if your due dates are different and ask if they can spread out the payments over the entire month. You can also automate your payments to ensure you never miss a payment.
- Ignoring Your Company Freebies
What’s inside your company’s goodie bag? Your benefits package contains many answers to your future financial security, but some people don’t pay enough attention.
Different types of benefits can add significantly to your compensation. You may miss some important features as a new employee trying to understand it all.
Look for benefits that directly benefit you, such as flexible work arrangements, paid gym memberships or professional development grants.
You may have to pay immediate attention to some of the benefits in your package, such as a 401K plan sponsored by your employer that you must opt-into if you want to participate. You can find out the details about insurance plans such as health coverage by looking for them.
- Refusing free Retirement Money
Why would a 22 year old be thinking about retiring? Your 401K retirement program sponsored by your employer is the next thing you should do after figuring out where to find the bathroom in your new office. It’s really that important.
It is best to begin contributing now to your retirement, especially if you are receiving free money from your employer for your retirement plan. Many employers will match your contributions in part or whole.
Compound growth is possible when you contribute early, even though it may be a small amount initially. Compounding occurs when you earn interest over interest. This multiplies your growth for 40 years or more.
Automating the deductions from each paycheck is a simple way to do it.
You will lose a lot of money if you wait. If you invest $100 per year, but your brother does not start until age 25, you will have less than half of that amount in your account by age 65.
Even though he only contributed $12,000 over a period of ten years, your brother will have $162,000 and you only $89,000.
- Health Insurance Can Be Skipped
You are young and healthy, and you don’t often think about large doctor’s bills. If you need surgery after breaking your leg while skiing or injuring yourself while playing basketball, and you do not have health insurance, you could be facing a high bill.
You can stay on your parents health insurance plan if you are under 26. You may be able to get your own health insurance plan depending on your employer or employment type.
Check the monthly premiums, deductibles and other details to understand your new health coverage.
How to prepare better for medical costs and be more tax efficient? Open a Lively Health Savings Account.
- Credit Card Debt
While credit cards are beneficial, they can also tempt recent graduates and college students to spend beyond their means. Collecting credit card rewards or airline miles is fun. They can be financial toxic if not handled with care.
You should pay only the minimum amount on time if you are unable to pay off the entire balance. This will not affect your credit rating.
If you pay only the minimum required, however, you’ll build a mountainous debt that you won’t be able to easily get rid of.
Imagine you charged a $1500 vacation to your credit card with a 19% rate of interest. You’ll have a $60 payment if you only pay the minimum monthly amount to the credit card company.
To pay for the entire amount plus interest you will need to make 106 payments. You’ll also have to pay $889 total in interest. This is more than half of the extra cost for your vacation!
- You Should Not Ignore Your Credit Score
You may not have considered building a high credit score. If you plan to buy a house, rent an apartment, or purchase a vehicle in the coming years, a high credit score will be crucial.
You will need to wait for your credit score to reach the level you desire. To build your credit and get a high score, it can take many years. It is important to have good financial habits. They can speed up the process.
Monitor your credit score and report regularly.
You need to start building your credit report. Open a few accounts that will report to the main credit bureaus. You can also become an authorized cardholder on your parent’s card, provided they have a good credit rating.
As you pay your bills on time, your credit will improve. Paying your bills on-time will improve your credit rating.
Avoid carrying a balance on your credit card. This can lead to costly debts, make it difficult to manage and even prevent you from getting an apartment.
You can improve your credit score by monitoring your credit report and getting recommendations. Credit Karma or Credit Sesame are both free to use.
- Delay in Investing
Many people regret not having invested earlier. Even small amounts of money are a good way to begin investing. Don’t waste your time when you are young.
When investing, a long-term view allows you to ride the volatility out rather than bailing on the market. Compounding can boost our investment returns.
After you’ve set money aside for emergencies and automatic contributions to your retirement account, open a brokerage and purchase a low cost index fund that tracks market movements.
Diversification is essential from the beginning. You can increase your portfolio by investing in savings. Avoid being reckless and understand your risks.
This article was originally published on Wealth of Geeks. It has been republished by permission.
