Black Family at college graduation

What Financial Mistakes Should New College Graduates Avoid?

You might be wondering, what financial mistakes should new college graduates avoid? Well, I’m sharing 7 financial mistakes new college graduates should avoid based on my personal experience. Let’s go!

1. Not Having A Budget

I get it, you’re finally making some sort of stable income and it feels good to be able to pay for things. The last thing you want to do is get right to make a budget. I assure you that the best time to put together a spending plan is right now, at the beginning of your years of earning a steady income. All things equal, this is likely the lowest amount you’ll make in your career. If you can make a spending plan that accommodates living expenses, debt payments, fun money, and investing right now, then you’ll be able to have room for so much later as you hit your financial goals and as your income grows.

To Avoid This Financial Mistake, Do This:

  1. Tell your money where to go! Be the boss of your money and don’t be at the mercy of it.
  2. Write down all your income and expenses.
  3. Decide how much you will put into savings, retirement, and sinking funds, and automate all of those.
  4. New to budgeting? Here’s everything you know on Budgeting 101 and some of the most popular budgeting apps to try!

2. Missing Out On Employer Match

This is one of the most common but costly financial mistakes new college graduates should avoid. At most jobs In the USA, Canada, or the UK, employers will make matching contributions towards your retirement or pension. However, employer contributions are often (not always) dependent on your contributions as an employee. For example, an employer may match 50% of contributions up to 6%. That means if you contribute 6% of your salary, your employer will throw in another 50% of 6% (or 3%) on top of your contributions but you have to do your part first. Your company has factored this as part of the cost of your services so you’d be doing yourself a disservice by missing out on this immediate 50% return and on a portion of your earned compensation/benefits package.

To Avoid This Financial Mistake, Do This:

  • 1. During your orientation week at work, read the benefits package provided or ask HR how much you need to contribute in order to get the full employer match,
  • 2. Contribute that amount (at a minimum).

3. Lifestyle Inflation

Lifestyle inflation or lifestyle creep is spending more as your income increases. Graduating from college and getting that full-time salary is one of the biggest income boosts we ever get. I went from earning $10 an hour to $50,000! Hello, I had finally arrived!!!

It can be very easy (and normal to be honest ) to fall into the habit of increasing your lifestyle to match your income. Nothing wrong with loosening the purse strings a little bit but don’t spiral and then have nothing left to save, invest, or pay down debt at the end of every month.

Do This To Avoid This Financial Mistake

  1. Create a budget,
  2. If it makes sense to have roommates or to live at home for some time, do it
  3. Automate your saving and investing so it is gone before you have a chance to blow it all on something that won’t matter in a year,
  4. Make room in your budget for things that bring you joy, within reason of course.

4. Not Making A Debt Repayment Plan

Whether you’re graduating with student loans, credit card debt, a car loan, or other types of debt, it is time to tally up all the debt and make a plan to pay it off. Decide on whether you’ll use the debt snowball or debt avalanche method, and know that it will get better you will get the balance to zero.  You can pay off debt and start investing at the same time. This post can help you decide whether to focus on paying off debt or investing, or both!

Do This To Avoid This Mistake

  1. Write down every single debt you owe from smallest to largest across all types of debt.
  2. Determine the minimum monthly payment and assess if you can afford to pay more than the monthly payment.
  3. Make monthly payments over and above the minimum payment
  4. Assess how long it will take you to pay off the debt and
  5. Start tracking your progress to your debt payoff date monthly.

5. Not Saving For Retirement

This financial mistake goes close in hand with mistake number 1. You might be wondering, what if there is no employer match? You can start saving for retirement via a Roth or Traditional IRA. With an IRA, you actually get more investment options compared to a 401k or 403b. I started my Roth IRA in 2010 and all I could afford was $50 a month at the time. As my income grew, I increased my contributions until I was able to max it out after 5 years. The biggest benefit of starting small is that I got to benefit from the power of compounding!

Do This To Avoid This Mistake

  1. Determine if you can afford to put aside at least $50 a month in an IRA account
  2. Open the IRA account (Roth or Traditional)
  3. Automate your monthly contributions
  4. Increase your monthly contributions as your earnings increase

6. Buying A Brand New Car

When you’re just starting off, you do not need a brand new car. Your car should be able to take you to and from work and that’s it. Starting off right away with a car loan on an expensive car is NOT the right way to kick off your best young adult life. The car will look great in your driveway but not on your bank statement as it drains your bank account.

To avoid this financial mistake, do this:

  1. Keep driving your college car if it gets the job done
  2. If you live in a city with great public transportation, skip the car
  3. Buy a used car for starters and put down a down payment if you can
  4. Buy a car you can pay off in 2 -3 years

7. Not Learning About Money Management and Investing

The best time to take advantage of the financial literacy resources around you is, right now, at the beginning of your adulting/income-earning years. Yes, adulting is overrated but financial literacy is not.  You don’t have to figure it all out in one day or one month or even one year. However, choosing not to pay attention/start your financial literacy journey now may lead to many regrets in a few years as it may impact your ability to purchase your first home, enjoy vacations debt-free, or even retire early.

To avoid this financial mistake, do this:

  1. Take advantage of free financial literacy resources provided by your employer
  2. Listen to two different money-related podcastsRead a personal finance blog post a week (glad you’re reading this)
  3. Straight up take a financial boot camp or investing course
  4. Have money conversations with your money tribe.

Graduating from college and starting a full-time job is a season of transition and new college students can feel like they have a lot going on and that is understandable. Want to know more? Listen to this podcast episode for 8 things I wish I knew at graduation. This season provides a wonderful chance to set some solid foundations to build a steady financial future. You can do so by avoiding these 7 financial mistakes as a new college graduate.

Congratulations on graduating and welcome to adulting, we’re all just figuring it out!


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