Money mistakes are not uncommon as a lot of people go through them but it becomes a lot more challenging when you are just fresh out of college. As you graduate from college, there is a big chance that you have a lot of student loans under your name while you frantically look for that first job that can give you financial stability.
This is why financial mistakes made at an early stage can be both an advantage as well as a disadvantage especially for young Americans trying to make their way into establishing their career. For one, it is good to make mistakes because it teaches you valuable life and financial lessons. Oftentimes, these are the ones you never learn in school.
On the other hand, money mistakes can make your start a more challenging one. You might not be able to afford that credit card purchase but you believe buying that expensive pair of clothes is essential for your first job. You get to wear new and expensive clothes but as soon as the credit card bill comes in at the end of the month, you start to worry about how you will pay the bill.
The problem is that you cannot avoid financial mistakes in your life. You will always encounter them at any point in your life. The idea is to go through them and learn from your mistakes. This is important because if it happens again in the future, you already know how to maneuver around it. It is also important to have an idea what these mistakes are so you know what to avoid. Here are some of them worth looking into.
Putting a lot of money into your housing expense
One of the first money mistakes you might make fresh out of college is thinking that putting a lot of your money into your dream house makes a lot of sense. You might have done the math and if you take out a 30-year mortgage loan, it would be paid off before you reach retirement. You might also want to make sure that you are spending money on what matters most.
However, this might not be a good idea especially if your finances and house payments don’t line up. You could be starting with an average salary and you want to get that nice big house in preparation for a big family in the future. You might have a hard time meeting your house payments because you will have other expense items in your budget apart from your mortgage.
One other thing to consider is that the career you are trying to build might bring you to different parts of the country and even the world. If you took out a mortgage loan, that ties you down to a specific place. You have the option of selling or having it rented out but you might not have the time to oversee those decisions. This is not to say that you should not get a mortgage loan but to think it through and make sure that it does not put your finances in peril.
Putting student loan payments on hold is one of the money mistakes fresh graduate make
One of the biggest financial challenges that a lot of graduates face is their student loan repayment. At present, student loans have carved its way up next only to mortgage loans as shared by Forbes. It is even more than credit card and car loans combined. It has been increasing year on year making it one of the biggest problems for college graduates.
Yes, student loans are a big help in giving you that extra push as you go into the corporate world but it can also hinder your progress if you put it in the backseat. If you decide to focus on other areas of your life and let your student loans accumulate interest over time, you could be facing a potentially big problem in a few year’s time.
There are a number of ways to help you manage your student loan repayments as you work after college. For one, you can look into consolidating your debts to help you keep track of all of them. This is because there is a big chance that you took out a couple of federal student loans to pay for college and might have even a private student loan in the mix. You need to make sure that you pay your student loans on time so you can move forward and pay it off in time.
Thinking retirement is too far off in the future
Another one of the money mistakes fresh graduates often make is thinking that retirement is still a long way to go. This is not too uncommon with young people starting work for the first time. Retirement is still decades away and planning for it might not be one of the top priorities. However, this could prove to be a mistake down the road.
One thing you need to remember when saving for a retirement fund is that the earlier you plan and save for it, the sooner you can retire. One of the key ingredients of making your fund grow over time to reach your target is time. The longer you save money, the more compound interest you can earn which will increase your nest egg.
If you invested your money in the stock market early enough, you could realize gains in time for your retirement years. A number of investments also takes time to mature and grow and actually yield some gains. You cannot invest this year and expect your money to double by next year. This is why you need to save for retirement as early as you can.
Foregoing saving money at the get-go
Getting that first job can be exciting because you now finally earn your own money. You can start buying things that were once out of reach. It is also possible that you start spending money left and right for expenses that are really not necessary. You start buying top of the line gadgets simply because you have the money to do so.
Choosing to impulsively spend money rather than saving it is one of the money mistakes a lot of fresh graduates make. It can be the thrill of it or you might simply be tempted by your newfound ability to buy. Whatever it is, you need to make sure that you prioritize saving money for the future so you are prepared and protected.
Not having a comprehensive budget to track money
Once you already have a steady flow of money and a couple of regular payments to make every month, you need to have a budget. The sooner you start with it, the better you can become at it. Start making a budget even if you are only earning a small salary and only have a few expenses every month under your name.
One thing you can get out if this is creating that habit of managing your finances. As your income grows and your expense list becomes longer, the more you can manage it because you have started early. You already have a good idea of how to make ends meet and how to make adjustments on your budget to make it work every month. Choosing to forego a budget and deciding to just wing it can lead to unexplained debt and mismanagement of your funds.
There are a number of money mistakes a lot of fresh graduates make and it can be a good thing provided they learn from it. Mistakes are a great teacher only if you choose to learn from it.