Top Five Financial Mistakes New College Graduates Make
Today’s economic outlook isn’t strong, and it’s a particularly harrowing time for college graduates. With student loan debt up and hiring depressed, many students are facing heavy debt burdens and reduced prospects of a job that will pay enough to manage that debt—while allowing them to live on their own. In these tough economic times, it’s more crucial than ever for students to be financially savvy.
Making money missteps in your first few years out of college could affect your financial life for years to come. Here are a few tips to avoid getting into trouble now and later, no matter your employment situation.
Failing to read the fine print
New grads are often likely to gloss over the fine print on contracts—after all, many haven’t been burned before. But don’t wait until you unknowingly violate the terms of a financial contract and have to face heavy fees to learn this lesson. When signing any regular contract—for rent, a car loan, a new credit card, a cell phone plan, or anything else—make sure you can answer the following questions:
- What exactly will you be expected to pay—now and later?
- Do interest rates or payment terms change after an introductory period?
- What happens if you miss a payment or pay late?
- How can you get out of the contract early?
- How can the other side get out of the contract?
Reality stinks sometimes, but it better to know what mistakes to avoid after graduating to save yourself money and difficulty in your finances later on.
Getting behind on debt
If you’re like most of this year’s college graduates, chances are you’re leaving school with considerable debt—in student loans and on credit cards. Don’t allow yourself to get behind on this debt. Missing payments can result in a worse credit score, making it more difficult for you to buy a car or rent an apartment—two things recent grads often have to do right away after graduating. They can also result in expensive fee penalties.
Renting a place that’s too expensive
It can be thrilling to finally rent your own place. But many college grads make the mistake of renting a place that’s too expensive—either it takes up too much of their monthly earnings, or it’s rented based on the assumption of what you’ll make later when you find a good job—which could take longer than you plan. Either way, be careful when renting an apartment. The amount of your rent should be no more than 25% of what you earn per month. Save money by sharing an apartment with roommates or by living in a less expensive neighborhood, and make the choice of renting a less expensive place than you can afford.
Failing to save
It’s extremely common for new graduates to fail to build up a healthy savings account balance—which could lead to disaster. One of the first things you’ll realize as a new graduate is that life is unpredictable. No matter how well you budget, you’ll run into problems that will require significant savings to handle—something like an unexpected medical cost, a car repair, or the loss of a job. If you have savings, you may be able to weather these unpredictabilities with little stress. If you don’t, they can be devastating.
Considering monthly cost, not overall price
It’s common for salespeople to emphasize the monthly price of something, not the overall cost. But be wary of what you’re getting yourself on the hook for, whether it’s a car payment or an extension on your student loans. Extending the payment period may lower your monthly costs, but it will raise your cost of payment over time—and you could wind up paying twice as much or more than you originally owed in interest.
It’s a scary financial world out there, and new graduates need to be very aware of how they spend and safeguard their money. Always read the fine print in any contract you sign, stay regular on your monthly payments, and don’t get in over your head with a loan or apartment you can’t afford. As a new grad, you’ll have plenty to worry about in life—don’t let money be one of your worries.
MoneyUnder30.com: Money Mistakes We Make Growing Up
Investopedia.com: Five Money Mistakes New Graduates Must Avoid
Distance-Education.org: What the Mortgage Meltdown Might Mean to College Students
Distance-Education.org: Five Steps to Killing Your College Debt
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