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Financial Mistakes to Avoid as a Recent College Grad

 

Mistakes to avoid financially as a recent college grad

Mistakes to avoid financially as a recent college grad

Mistakes are unavoidable, but you should be especially careful when it comes to your finances. As you prepare to graduate college, you also prepare for the “real world.” You’ve spent the last four years obtaining as much knowledge as possible in your field, applying for jobs, and writing your resume. Graduates beware, student loans are the second-highest form of personal debt. And with college debts increasing, it is more important than ever to have a smart financial strategy in place. A solid plan will help you avoid as many mistakes as possible.

By taking a step ahead of your peers in choosing wise investments, you can create healthy habits. This not only improves your personal finances for years to come but also avoid future debt issues.

Financial Mistakes to Avoid after Graduation

Financial mistakes can be easy to make, but there are ways you can avoid them.

Mistake #1: Having no credit.

Everyone talks about saving money, and we are no different. Unfortunately, all this talk about savings has college graduates a little hesitant to take out loans or credit cards. This is due to the fear of creating an overwhelming debt they can’t repay. Plus, not to mention, college already creates heavy financial obligations. Furthermore, it is increasingly harder for those under 21 to sign up for a credit card with no existing income. So, what’s a newbie to do? Build your credit history slowly and regularly by opening accounts and using your own credit cards.  Making consistent payments by or before the due dates establishes a good credit history.

Why this is important: When you want to make big, future purchases, like a house, you will have a hard time being approved for a loan. Lenders may require a co-signer or collateral if you have no credit. When I was still in college, I bought my first car with cash I had saved from my summer job. Not long after graduating, I needed to purchase a new vehicle. This proved to be a challenge due to my lack of credit. Over the years, I have been able to develop a favorable credit score by paying off a credit card and the loan for my vehicle. Had I started to build credit sooner, I wouldn’t have struggled so much to get the car I needed.

Mistake #2: Not having a plan.

Having a limited or non-existent financial plan is one of the biggest mistakes recent college grads make. As a poor college student, you are lucky if you have two pennies to rub together as you battle the choice of groceries or rent. When you land that first job out of school though, it can be easy to fall into poor spending patterns very quickly. To avoid this, cut back on unnecessary expenses like going out to eat.  Spend more time enhancing your cooking skills and spreading out your personal purchases. Instead of buying everything for your new apartment at once, budget your expenses over time. Additionally, focus on always paying bills first at the beginning of every month. Then, you know how much is still available in your accounts to last the rest of the month.

Why this is important: Money adds up quickly. So, developing these positive habits sooner can save you not only hundreds but possibly thousands per year.

Mistake #3: Waiting to save and worrying about finances later.

Consider consulting with or finding a financial mentor to help you along this new journey. Waiting to save or pay off student loan debt can cause major inconveniences in your future. Knowing where to invest savings is also tricky, but a certified financial specialist can help you. Try the Digit.co app to automatically save up and pay debts and also try to contact friends from college with a finance degree who may be willing to provide some advice at no charge as they begin their careers.

Why this is important: The sooner you start paying down those student loan bills, the better your overall financial situation. If you were to plug your debt numbers into this student loan calculator tool, you may be appalled at the time frame it will take you to pay it all off. The minimum monthly payments barely cover the interest. Plus, creating a savings account and emergency fund will keep you out of sticky financial situations.

Mistake #4: Not investing early.

Time is the greatest benefit you can give yourself when it comes to investing. Even if you are only contributing a few hundred dollars each year, compounding interest rapidly grows your investments over time. Instead of blowing any extra cash you receive, put it away to help provide some financial security for the future. Try the Robinhood app for this, this is the best app for beginner investors like you.

Why this is important: You are only working against yourself the longer you wait to start investing and planning for retirement. Even with minimal contributions, you can create a significant amount of money the earlier you begin. With a little forethought, you can provide a security net and a nice retirement fund.

By thinking about your future now, you can avoid these common financial mistakes recent college grads make. At the same time, you are also building yourself a nice, comfortable financial safety net.

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Investment Strategies For Recent College Grads

Investment strategies for recent college grads.

Investment strategies for recent college grads.

Investment strategies should be one of your top priorities upon graduating college.

For those preparing to graduate from college this month, this post is for you.

If you have been following us, you may have read last week’s post regarding financial mistakes to avoid upon leaving your past four years of sanctuary. This week, we would like to discuss wise investment strategies for you as you (hopefully) begin interviewing more and potentially accepting promising job offers.

If you did not study finance or economics in your undergrad and you have never consulted with a financial planner, investing may seem like a foreign concept to you.

In addition to what we discussed last week, here are some ways you can set yourself up for a promising financial future:

Create a personal spending budget.

By not having a budget for yourself, you are more likely to spend more than you make each month as you begin to see an increase in your bank account thanks to your new job. However, holding yourself accountable will prevent any slip –ups as well as promoting positive spending and saving habits for your future. When everyone tells you to start now, they really are not kidding.

Set up your Individual Retirement Account (IRA).

If you’re lucky enough to land a job that offers a 401K, be sure to always add to it to help increase its value, even if your employer matches. The more you add in now, the better for your future. If you are among the many who do not receive this as a benefit with their place of employment, open an IRA now. A summary of what to look for in a retirement savings account includes:

  • First, there are two types: the Traditional and the Roth. Contributions to Traditional IRAs are tax deductible, but withdrawals during retirement are taxed. Roth IRAs are not tax deductible, but withdrawals are generally tax-free. In other terms, you avoid taxes when you put money in to Traditional IRAs, and you avoid taxes when you take money out in Roth IRAs during retirement.
  • No-fee IRA’s. Some charge you for simply holding an account with them known as a “custodial fee.” You will want to ask your institution if they charge any fees for hosting the IRA.
  • Additional charges. Another question you will want to ask your custodian is whether or not they charge any kind of transaction fee. These are typically charged when you go through a financial adviser to purchase your mutual fund. Be sure to also inquire about other fees that may be associated like contract charges.

It’s often recommended for those starting out their investment portfolio with limited funds to begin with a Traditional IRA. A concern is that individual tax fees for Traditional IRAs could be higher but is not guaranteed. You will want to weigh out all your options with both in order to determine what is best for you.

Ignore Get-Rich-Quick Schemes.

If something seems extremely complicated, it probably is. As a newbie to the world of investing follow the K.I.S.S. rule (“Keep It Simple Stupid”). Choose one source and keep it simple. Over time, you can grow your net worth, but it will be hard to accomplish if you don’t understand what’s happening to your money.

Don’t be afraid to purchase used items first.

The goal and purpose of growing your investment portfolio is to decrease debt. As a college graduate, you will already have loans unfortunately accumulated on your shoulders upon stepping foot off that campus for the last time as a student. So, buy used items and live below your means. You will work your way to having those nicer items much faster by choosing to spend less now.

Know your assets.

In this previous post, we discussed what comprises of an asset and what does not. In summary, an asset is something that puts money in your pocket; not removes it. Consider this as you make big purchases over the next few years.

Choose the right savings account.

If you are already excellent at saving money, that’s awesome! But, did you know you can make it a little more worth your while? Have your savings pay you back by choosing the right type of account to increase your investment will waive some worries for you in the future. Some to consider are:

  • Online Savings Account: Earning potential is higher.
  • Money Market Deposit Accounts: Despite minimum balance requirements and monthly fees, the interest paid is typically higher than that of traditional savings accounts.
  • Certificates of Deposit (CDs): Another opportunity for higher interest rates paid, but limitations do apply for withdrawals.
  • Automatic Savings Plans: Can help you obtain lower banking fees.

As always, and with any choices you make, be sure to do your research and ask a lot of questions to see what fits you best.

Invest in an emergency fund.

This may not seem important, but with the economy so up and down, you will want to be prepared for the worst. I’ve heard of several stories of companies going under or downsizing, leaving individuals back on a job hunt in an increasingly competitive market. In fact, the company I did my undergraduate internship with closed down several offices, leaving no opportunities for me upon graduating. I watched co-workers one by one receive the unfortunate talk. There is also the possibility of being fired, which I have also heard of from individuals who seemingly held a strong position in their occupation. It happens, and you need to be prepared. The recommended strategy is to save six months of savings to keep you afloat in case of an emergency.

Invest in higher payments to your student loans.

Only paying the minimum on your student loans will keep them hanging over your head longer, and thus, keeping more debt in your life longer. The average time it takes for a college grads pay off student loan debt is 21 years. It doesn’t have to be this way though.

 

Make your future better and financially more stable through these tactics and tips.

Do you already have an investment strategy in place for when you graduate?