It’s college graduation season, which means that many young millennials will embark on their journey to full-fledged adulthood. Post-grad life involves many ‘firsts,’ including your first salaried job, first time living on your own, and the first time you face financial responsibility. Upon graduating college, the real fiscal education begins. To make it seem a bit less daunting, we’ve covered the top three financial mistakes to avoid and how to remedy them.
Mistake: Racking up credit card debt
It’s not unusual for young adults to succumb to the pressure of keeping up with their peers, which can lead to excessive spending. Many college grads will use their credit cards to cover material goods and travel experiences that otherwise would not fit the bill. However, living a lifestyle outside of your means, especially early on, can hurt your credit score and build an avalanche of debt over time.
Remedy: Realistically evaluate your budget and identify whether or not you must cut costs and pare back your lifestyle. Relying on a credit card to cover expenses is a difficult habit to break and can dig you in a hole in the long-term. It’s also a good idea to check out how much interest you’ve paid, which might serve as a good wake-up call.
Mistake: Not contributing to a 401(k)
401(k)s are offered by most employers, and in many cases, employers will match some amount that you put in. The power of compounding will allow your finances to grow over the long-term; the earlier you begin contributing, the more time your money has to grow. If you put off contributing at an early age, you’re missing out on valuable time in the market and throwing away free money.
Remedy: The amount that you contribute to a 401(k) will depend on your personal situation. However, the most valuable tool is educating yourself. Look at how much you can remove from each paycheck without stretching yourself too thin, you want to at least contribute the employer match. In addition, if you’re unsure about how 401(k) plans work or have any questions, talk to your advisor to learn more and get set up.
Mistake: Not factoring in student loans
Student loan debt is an unfortunate reality, and a large percentage of college graduates will need to develop a strategy to pay back debt. Without a proper plan in place to pay off student loans, it can become difficult to manage. There can be severe consequences of making no attempt to pay or resolve them.
Remedy: Be informed of what your loans entail and the payment options available to you. There are various options regarding refinancing or consolidating debt in order to pay them off at a lower interest rate. It’s also important to stay consistent with your payments, putting it on an automatic payment process is the best way to make sure you’re paying it on time.
To read more, check out my comments in a recent Business Insider article, “A financial advisor shares the 3 most common mistakes new college grads make with their money.”