Roughly 3.8 million students graduate each year with some form of a higher education degree. In fact, roughly half of those who graduated in 2018 will leave school with at least a bachelor’s degree. Although having a college degree sets students up for success in their careers, a college degree isn’t enough to help recent graduates avoid these top 5 common financial mistakes.
1) Pushing Off Paying Student Loans
There are approximately 45 million student loan borrowers in the United States with a total outstanding balance of $1.48 trillion. To put this into perspective, 3 out of 5 graduating seniors will have some form of student loan debt.
One of the biggest financial mistakes young graduates make is pushing off student loans by making the minimum payment. Depending on the size of the loan, graduates can find themselves in big trouble when they realize how much their student loans can grow. Yes that’s correct – the balance of the student loan can increase if the monthly payment doesn’t cover the monthly accrued interest.
2) Tying Up Cash Flow With Reoccurring Payments
Does this sound familiar? You get paid every other week but you always seem to be a week behind. You try to save money but it seems like you have more bills than you have cash left over at the end of the month. If this sounds familiar then you probably have too much of your income tied up in reoccurring payments.
Reoccurring payments are typically payments made for bills that need to get paid on a monthly basis. These include your car payment, phone bill, student loan payment, Spotify subscription, wine of the month subscription, rent, car insurance, etc. If you add up all the reoccurring payments that eat up your paycheck you’ll realize where your money is going.
When students graduate they typically fill up their budget with reoccurring payments. They buy a new car, move into a new place, sign up for a few subscriptions, and charge a few vacations on a credit card. Avoiding or reducing these reoccurring payments will go a long way to creating a sustainable budget.
3) Not Making a Budget
The biggest financial mistake most recent graduates make is not creating a budget. It’s understandable because it’s often the norm for college grads to have little to no income. Once you land that first job, however, budgeting needs to be an integral part of any financial plan.
Setting up a game-plan at the beginning of the month showing the ins and outs from your bank account is a great way to ease financial stress. Not knowing where your money is going or not knowing how much money is going into your bank each month is a sure-fire way to cause financial headaches.
4) Not Keeping Track of Retirement Funds
You’ve heard the saying, “it’s never too early to start saving for retirement.” Saving for retirement is key for young professionals looking to set themselves up for success later in life. However, just like some of your friendships made in college – nothing last forever.
That’s why it’s important for recent graduates to understand their retirement savings accounts. For example, if you leave a job your retirement account doesn’t automatically roll over to your next job. Not properly rolling over retirement savings accounts to your new employer can sometimes lead to a taxable event. In this case you could lose up to half of the amount in your retirement savings account after penalties and taxes.
5) Not Seeking Professional Help
The biggest mistake recent college graduates make is not seeking professional help. Whether it’s filing your taxes or buying a new home, you want to make sure you have a trusted advisor by your side.
With the complexities of finance, law, and taxes, having a Master’s degree in Google searches is not enough. Making a major financial decision without consulting an advisor may lead to losing out on thousands of dollars over your lifetime. That’s why it’s important for young professionals to seek professional help with it comes to their finances.
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