Financial Mistakes to Avoid as a Fresh College Graduate

You’re fresh out of college, with that rolled paper tightly in your hand and ready to face the world.

But the journey ahead of you is a daunting one, especially where money is involved. Many college students graduate with bags of debt hanging over them. Research has found that for a four-year degree in the USA, the average student debt at the point of graduation is around $27,000 in total. THAT is a lot of money. But debt has never stopped anyone from striving forward towards their goals.

Though your 20s can be challenging (confirmed by everyone this writer speaks to), there are simple adjustments you can make from the moment you step out of your college halls to not just reduce the student debt but to ensure financial wellness throughout your life.

While there are many different ways to boost your financial health, let’s focus on just a few straightforward tips and tricks to apply in your everyday life as you navigate this new chapter of your life.

If you’re a recent graduate, already two years into your career, or have no idea what you’re doing with your life, I challenge you to pick up one of these tips. Try implementing one, just one, and observe the difference it can make in the long term.

Mistake #1: Not Saving Up!

Independence and freedom from the shackles of classes, assignments, and exams! Or so you thought.

Don’t let this newfound independence and your new job cloud your view.

Most graduates leave the comfort of their homes and venture out on their own but they live paycheck-to-paycheck, all their earnings being spent on daily expenses - rent, car payments, food, utilities, and so forth - while those graduates still living with their parents may feel obligated to contribute to their family expenses as well.

“It’s alright, I can save up later,” You think. That’s a very dangerous fine line you’re crossing there friend. We encourage you NOT to take that risk, especially in this economy where the stocks fall as easily as government leaders. With such an unsure and unpredictable future for the younger generations, always be vigilant and ready, especially with your finances.

Here are some ways to save up

Buy used items/reuse/recycle
Carpool whenever you can
Shopping: avoid online shopping or buy in bulk
Have a budget to follow (more on this later)
Start an Emergency fund (again, keep reading to learn more)
Look into a Retirement fund (in the USA, common ones include the 401(k) fund, Roth IA, etc)

How much of your salary should you pay back to your student loan?

Though this depends on your salary and your student loan, a small percentage of your gross monthly pay should be left to pay back your student loans.

But you wonder… do I first pay down my student loans or contribute to my 401(k) fund? We have the answer for you in our Maybe article right here!

Mistake #2: Failing to Budget!

Having a budget can do you wonders. Trust me. Budgeting provides you with a rough idea of where your money is going on a daily basis.

Different types of budgets-

a) The 50/30/20 Rule

You may have heard of this before. The 50/30/20 budgeting rule separates your after-tax income into three categories: 50% for needs, 30% for wants, and 20% for savings.

Add a method to the madness by separating your income and keeping track of your expenses.

Needs: these are what are essential for your basic day-to-day survival including utility bills, rent, car payments, healthcare, and groceries.
Wants: these are the items your heart desires, the items you stare at outside the shop window debating whether you really need it or not. Your hobbies, subscriptions, fashion, dining out, and so forth. Let yourself indulge now and again!
Savings: this is the portion to save for your investments, student loans, debt, and savings.

Still a little confused about how you can split your expenses into these categories? No worries, Maybe has you covered with our article. And perhaps this template can help you get a head start as well!

b) Zero-Based Budgeting

This is when every dollar equates to every expense.

Income - Expense = Zero

This does not mean you end up with zero dollars, simply that every single dollar has a use and purpose. What do you have to do?

List monthly income including regular paycheck, side hustles, etc.
List your expenses including every single thing (giving, savings, food, utilities, shelter, transport, etc).
Subtract your expenses from your income. If you end up running out of money and still have a bunch of expenses left, then you know you have to either increase your income or reduce your expenditure.
Track your expenses and review them.

The key point here is to keep trimming until you’ve reached zero. This is a great way to understand your finances (what is required and what you can get rid of), to save more and take control of impulse spending.

Mistake #3: Ignoring your Credit Score

Graduates often make the mistake of relying too heavily on their credit cards for payments and financing their lifestyle. While it’s great to have that freedom and safety net under you, it’s vital that you, as a fresh graduate, understand the foundations of credit score.

Your credit score determines your credit behavior and reliability in simpler terms. It is based on your history, whether you pay your debts on time, types of debt and when it started, payment history, and more.

A better credit score shows you are reliable to lenders and banks and can provide lower interest rates, and more opportunities and advantages when it comes to taking out a loan or a mortgage in the future. Maintaining that fantastic reputation and credit score from day one will be important, though you may not realize it right now.

What can you do?

Get a credit card with a low interest rate
Only spend what you know you can pay off every month
Automate payments wherever you can! Or set reminders.

Mistake #4: Not Starting an Emergency Fund

Life is as unpredictable as ever and with the way the economy is moving nowadays, it’s never a bad idea to have some extra dollars tucked away for a few rainy days.

Your Emergency Fund should, on average, cover for at least 3-6 months of your living expenses and preferably in a high-yield savings account to earn interest along the way.

High-yield savings accounts, in short, have a higher interest rate. Keeping your money in one of these accounts ensures that your money continues to grow while it sits in your account, gathering interest and growing over time. Check which banks and accounts are best in your local area.

No matter how small your salary may be, or how tight your budgets may seem, starting to build your emergency fund TODAY will take you a long way.

Mistake #5: Not Diving Into Finance Literacy

You are never too young to learn about finance.

And you are never too late either.

The best way to learn and grow towards your financial freedom is to surround yourself with the best resources. In 2024, we are surrounded by an array of resources. From books, podcasts, and blog articles to YouTube videos, there are plenty of methods to boost your financial wellness.

Try different forms of budgeting and see what works, read up on how to begin investing or the best forms of retirement funds that work for you. Talk to a financial advisor. The options are endless. It’s just a matter of simply reaching out.

YouTube

Matt D’Avella- well-known lifestyle channel, longer videos but fun to watch, lots of little tips in various areas. Direct personal finance advice, honest opinions, and informative.
Ali Abdaal - longer videos but a wide range of content focusing on productivity, finance, and business with tips and tricks, especially for young adults diving into the world of finance.
AdviceWithErin - more fun content about finance and career advice targeting the youth primarily. Easy-going financial content for college students, with very practical solutions.
Miki Rai - a Nurse with a range of videos showcasing her daily life. Her videos lean towards more of a vlog style - very casual and honest, but her finance series is straightforward, easy to understand, and practical.
PensionCraft - more advanced content, and despite the clickbait thumbnails they have an extensive background in investment banking. Compresses complex information about investing and market behavior into clear and easy-to-understand video content.

Podcasts

The Ramsey Show by Dave Ramsey - 40 minutes; well-known financial expert providing interesting and practical solutions and tips for people who call in during his show. Insightful, honest, and provides tips for anyone.
BiggerPockets - longer than 60 minutes; focusing on personal finance and how to earn more, spend smarter, and grow. Good for beginners interested in home planning, investing, taxes, and retirement planning.
AffordAnything by Paula Pant - longer than 60 minutes; more advanced. She interviews people and guides her listeners on how to make smart financial decisions encouraging a balanced life.

And of course, here are some books that we recommend.

Learning and personal growth don’t just cease at a certain age. Whether you think you know everything about budgeting, I’m positive there’s something new to learn as well.

Stay curious. Stay vigilant and yes, spend wisely.

Key Takeaways

Start saving up whenever possible. Start today and spend wisely by budgeting, cutting down on costs wherever possible, and starting your retirement and emergency funds as well.
Start budgeting no matter how big or small your paycheck may be. This helps to keep track of your expenses and income, categorizing them into needs, wants, and your savings.
Pay attention to your credit score by making payments on time and relying less on credit card spending. Maintaining a good credit score will provide greater benefits in the future.
Start your emergency fund TODAY! Save a portion of your paycheck to your emergency fund in a high-yield savings account as a backup because you just never know when you’ll need it.
Surround yourself with finance resources and aim to develop your wealth through knowledge and practice! With several resources from books, podcasts, videos, and blog articles, the opportunity to grow is endless.