College graduation is a time of celebration for students and a jumping-off point for the next chapter of life. It’s a time to make important decisions, whether you’re continuing your education with a higher degree, starting your career, or taking a moment to regroup.
But it’s not the time for making poor financial choices. Here are a few common money mistakes recent grads make and how to avoid them.
1. Thinking retirement is too far off to start saving
Retirement may be years away, but it’s better to start saving for retirement as early as possible. The earlier you start saving, the more time your investments have to grow. As you add money to your retirement fund, interest also starts to accrue. Over time, you start earning interest on the interest you’ve earned. This is called compound interest, and it’s a powerful savings tool. The earlier you start saving and earning compound interest, the better.
2. Missing student loan payments
Right after graduation is the time to focus on your financial future, which includes keeping up with student loan payments. This will help ensure you continue to build a positive credit history and possibly improve your credit score. A positive payment history and healthy credit score could open up more money-saving financial opportunities down the road, such as lower interest rates on an auto or home loan.
3. Overspending that new paycheck
If you have a new job in your chosen career field, you could be making more money than ever. But before you go spending your paycheck on the luxury items you’ve always wanted, consider the impact these purchases will have on your budget.
Necessary expenses — like rent, utilities, and groceries — should come first. Less obvious but important expenses like building an emergency fund or having enough for auto insurance coverage should also be considered before splurging on “wants” versus “needs.”
4. Banking where your parents do
The bank your parents use (and now you probably use) is likely a suitable location for storing money in FDIC-insured accounts. It’s not a bad thing to have access to brick-and-mortar locations, but most traditional bank accounts can’t compete with the benefits of online banking.
Making the switch to an online bank could help you earn more interest, avoid unnecessary fees, and still have FDIC insurance. In addition, your current bank might not offer other perks that come with the best checking accounts, like getting your paycheck early or having easy access to your money through a mobile app.
5. Misusing credit cards
Credit cards can be a helpful tool for building credit and having cash flow when you need it, but using them irresponsibly can offset their benefits.
Keep in mind that building your credit history and improving your credit score means following some accepted best practices. This typically includes making your payments on time, using less than 30% of your available credit line, keeping your oldest credit accounts open, having different types of credit accounts (for example a credit card and an auto loan), and not opening too many credit cards too quickly in a row.
6. Skipping renters insurance
Whether you’re back studying on campus or off to live on your own, renters insurance can offer you essential financial protection. This type of insurance can include coverage for clothing, laptops, bicycles, and other belongings in case of unexpected events like vandalism, theft, or fire.
If you keep these six tips in mind, you could avoid some of the common money mistakes that recent college grads make. This will help you take proactive steps to secure your financial future.
BIO: FinanceBuzz’sVP of Content, Tracy Odell, also held the same position at Student Loan Hero and has expertise in this subject, as well as all things related to college finances.