Learn and Plan | Common financial mistakes recent graduates make and how to help avoid them
A young woman smiles brightly while holding her diploma.

Common financial mistakes recent graduates make and how to help avoid them

May 11, 2022, 4:25:38 PM | Reading Time: 5 minutes

After graduating college, there’s a whole new world to navigate, and it can be overwhelming. You may be joining the workforce, striking out on your own, and learning how to handle your finances. Make sure you start on the right financial foot after college with these tips to avoid common pitfalls.

Mistake 1: Overspending

Now that you’re starting a job and making money, the temptation to spend may be strong. But don’t get over-excited. It’s important to be realistic about your lifestyle and what you can afford. If you’re spending more money than what you bring home in net pay each month, it can quickly become a problem.

How to avoid overspending

To ensure you don’t overspend, it’s a good idea to make a budget. Creating a budget can act as a roadmap, revealing where your money goes. You can use it to identify opportunities to save more for a specific goal, or just for a rainy day. Once you get into the regular habit of budgeting, it can become easier to maintain.

Mistake 2: Forgetting student loan repayment

As soon as you graduate and enter the real world, you typically have a grace period to start paying off your student loans. Once the grace period is done, you’ll likely need to start planning on how you’ll pay off your loan. Start by finding out the details of your loans, specifically how much you borrowed, what your interest rates are, the first payment date, whether you have a grace period or not, and how many years your loan term runs. Use a student loan calculator to estimate your monthly payments and see how much interest you’ll be charged. Make sure you work the payments into your budget.

How to avoid missing a student loan payment

Just as you likely automated your payments to subscriptions and bills, you may consider automating your student loan repayments and examining the repayment options available through your loan provider. Some providers offer income-based repayment plans that can help you manage costs based on your budget.

Mistake 3: Forgetting to save for your future

If you’re fresh out of school, you may not be thinking about saving money for the future, but it’s pretty important. Putting money away can help you make larger purchases down the road. Further, the experts agree that saving for retirement as early as you can is one of the best ways to help ensure you’re able to retire on your terms – even though that may seem far away! It’s ok to start small. Set a goal to increase how much you save every year. You’ll be surprised how quickly it adds up.

How to avoid under-saving

It’s perfectly understandable if retirement is the last thing on your mind. After all, it’s a long way off. If your employer offers a 401(k), be sure to take advantage of it as soon as possible, especially if they match a portion of your retirement contribution.

What can you do during college to set yourself up for financial success after graduation?

Create an emergency fund

Now that you’re out of school, you’ll likely be very focused on your present. Most new grads don’t think about saving money for a potential crisis. But, if we’ve learned anything from the Covid-19 pandemic, it’s that an emergency can occur at any time. The earlier you start putting money away for emergencies, the more flexibility you’ll have in case one comes up. Your base goal should be to save three to six months of living expenses.

Keep an eye on your credit score

Your credit score is very important because it’s used by lenders to see if you can manage your money. A good score will help you secure financing for big purchases, like a car or house. If you’re looking to rent an apartment, your score tells your potential landlord if you’ll be able to make payments every month. When you’re fresh out of college, you may not have much credit built up, but you can ensure your score stays high by using a credit card for your bills and paying off the balance every month. With your new degree in hand, go forward into the world to make it a better place. Find your joy, find your passion, and find the balance that comes with good old-fashioned money management.