Life after college graduation can be an overwhelming experience. Your whole world is changing. You may be both thrilled and sad to be done with your college days, excited for the new beginning, and nervous about what the future holds.
College may have been the first time you were somewhat on your own financially. But now it’s a whole new ball game as a young adult. Now you’re repaying those student loans you took out, hopefully managing a full-time income, and navigating a life that’s far different from your dorm days.
Before you sign the lease for that apartment with the breathtaking view or opt for expensive new shoes instead of putting some money in your savings account, check out these common money mistakes new grads make.
1. Not Taking Full Advantage of Your Grace Period
If you’re like 71% of college graduates, you left school with student loan debt. And chances are, when you graduated, your lender granted you a grace period. This is simply a designated period of time, usually around six months, where you aren’t required to make any payments on your student loan debt.
Unfortunately, a big mistake a lot of graduates make is ignoring these loans until you start getting a bill for them once repayment kicks in. But using that grace period to your advantage can put you in a much better position.
First, get in the habit of “making payments” on your loan. If your total loan repayment is going to be $300 per month, put that $300 each month in a savings account. At the end of the grace period, you’ll have the start of a nice emergency fund with $1,800. Plus, you’ll be used to paying that every month and already have a budget established with that payment built into it.
Second, take this grace period to figure out your plan of attack on the loans. If you are going to have trouble making payments based on your current income, now is the time to explore your options. You may qualify for income-based repayment options or, if you’re struggling to find work or make ends meet, an economic hardship deferment.
2. Failing to Make a Student Loan Game Plan
Even if your grace period is over, it’s not too late to formulate a strategy for dealing with your student loans. If you don’t handle this debt correctly, it can have a serious impact on your financial future.
The average graduate has $40,000 in student loan debt, but 19% of borrowers owe $50,000 or more. That’s too much to ignore.
Determine exactly what you owe. Write down what the interest rate is for each loan. Depending on the size and terms of your other loans, it might be worth making extra payments on the loan with the highest interest rate.
You’ll also want to learn what the terms are for these loans. Do any of them qualify for student loan forgiveness? Which of these loans qualify for an income-based repayment plan?
Some loans offer a slight interest rate deduction if you sign up for automatic debit. This will not only ensure you don’t miss a payment, endangering your credit score — it can save you hundreds of dollars in the long run.
3. Not Exploring Loan Forgiveness
One big mistake many college graduates make is not considering any of their student loan forgiveness options. If you’re not familiar with student loan forgiveness, it’s an opportunity to get your loans partially or even completely forgiven — you won’t have to pay for them.
While there are different types of programs and loan eligibility varies between them, there are plenty of options. You can receive loan forgiveness for volunteering, for choosing a job in a certain field or location, for serving in the military, or even for moving to a specific location.
4. Living Without a Budget
Only one in three Americans budget, according to a Gallup poll. It might have been difficult to budget in college since you probably didn’t have much money to work with. If you’ve landed a job, it may be tempting to indulge in all the things you couldn’t during college and finally just be able to spend whatever you want, whenever you want.
However, a budget is essential to stay on track financially. A budget can help you pay down your debts, keep you from overspending on unnecessary purchases, and help you start growing your savings account instead of adding to your debt.
5. Not Getting Health Insurance
Your post-college life will likely be a big transition, and you may be forced to think about things you’ve never had to deal with before — including health insurance.
You may have been covered on your parent’s plan or had student coverage through your school. If your employer doesn’t offer health insurance or you are still looking for a job, it’s up to you to enroll in a health insurance policy or make sure you’re still covered under your parents’ plan.
Gratefully, part of the Affordable Care Act requires insurance companies to extend coverage for adult children up to age 26. However, once you’re no longer considered a student, you or your parents should still contact the insurance company to ensure your coverage continues. Don’t assume you’re covered.
No one anticipates the worst happening, but unfortunately it does, no matter how young and healthy you are or how well you live. FacetheFacts.org estimates that the average hospital stay costs $33,079. Medical debt is the number one reason Americans file for bankruptcy. So find a plan that works for you, and protect yourself.
6. Not Saving
Thirty-six percent of college graduates admit to not setting money aside for savings on a regular basis, according to a Capital One survey. Not saving is a bad choice at any age, but making a habit of it when you’re young can really set you back.
Start saving whatever you can every month. If you’re having trouble with it, you can find ways to force yourself to save — try using technology to help you save or ask your employer to automatically deposit a portion of your paycheck to savings.
7. Not Contributing to a 401(k) or Retirement Fund
Saving for an emergency fund is important as well as whatever else you’re saving for – a down payment for a home, a trip, or whatever else. But one item that new grads definitely don’t save for enough is retirement.
In fact, 51% of millennials aren’t saving for retirement, according to a survey by Wells Fargo.
You just spent four (or more) years busting your butt to get a degree to get a job. It’s perfectly natural if retirement is the last thing on your mind. But while that may be (or seem to be) a long time away, the more you save now, the longer that money will have to compound and grow, and the better off you’ll be down the line.
If your employer offers a 401(k), take advantage of it — especially if they’ll match a portion of your contribution. That’s free money for the taking. According to Forbes, 40% of workers are offered some type of 401(k) match.
Not only are millennials not saving, but according to a study by Moody’s Analytics, their savings rate is actually –2%, which means they’re spending more than they have.
I get it. Now that college is over, you’d like to put your ramen-noodles-and-cheap-beer lifestyle behind you as well. Plus, with many college graduates moving back home (an astounding 85%), and less pressure to get married or buy a house as there once was, you might get the sense that you don’t need to take overspending too seriously right now.
The truth is, 18% of college graduates are underemployed, which means they are overqualified for their jobs, according to the Economic Policy Institute. And 41% say they are graduating into a job that doesn’t even require a college degree. So while you’re full-time salary probably puts that of your work-study job to shame, it’s still probably not enough to be splurging on every whim.
The best way not to overspend is to continue to live within or below your means and stick to a budget. Embrace some of the cheap habits you developed in college. You might be tempted to rent a pricey apartment since, chances are, your college one wasn’t too great. But stick to something you can afford, and consider living with a trusted roommate or two to help split rent, utilities, and other costs.
Now that you’re paying for everything on your own, learn to differentiate between your needs and wants: You need to pay for food, and rent, and gas; you likely don’t need cable, or a gym membership, or that new pair of jeans. See if anything on your want list is breaking your budget each month, and try cutting it out until you’re earning enough (or saving enough elsewhere) to afford it.
9. Using Credit Cards to Fund an Expensive Lifestyle
With overspending often comes the use of credit cards.
The average college graduate leave school with $3,000 in credit card debt. But it’s easy to let that number inflate exponentially if you’re turning to credit cards to fund a lifestyle you might not be able to afford quite yet.
Don’t abuse your credit cards. If you want to purchase something, save up until you have the cash for it.
10. Avoiding Credit
While some graduates have a problem staying away from their credit cards, on the other end of the spectrum are those who can’t get far enough away from it.
Many young adults have the perception that credit cards are bad. They can be, if you abuse them, but it’s important to build credit. Having a healthy credit history and solid credit score can help you eventually get a loan for a mortgage or a car, and even impact whether you’re able to rent an apartment.
If you’re trying to build credit but want to avoid taking on debt, simply make it a point to pay your credit card balance off in full every month.
Like with most things in life, there is a balance. Credit cards can be good if you are using them to purchase things securely with fraud protection, getting perks such as cash back rewards, and then paying off the balance in full. Plus, making payments on time and having a good debt-to-credit ratio will increase your credit score. However, when you are not paying the balance in full, the items you purchase end up costing you much more than the amount you paid, once interest gets tacked on. If you’re maxing out your cards or struggling to make payments, your credit score will suffer; so use them responsibly.
11. Taking on More ‘Big Debt’
On the traditional road map of life, you may find you have some big decisions to make soon after you graduate, many of which come with a hefty price tag.
If you’re considering graduate school, you might be looking at adding another $30,000 to your student loan debt, or even more (upwards of $200,000-$300,000 for law or medical school, for example).
Marriage can add to your debt, with the average wedding costing about $28,000. Round out the list with a car loan and a mortgage, and you’ve just built yourself a massive mountain of debt just as you’re starting out in life.
Before you take on all of these big debts, consider other options. Instead of taking out a loan for your wedding or charging it on credit cards, consider scaling things down a notch or postponing it until you can save up for the wedding you want. Do you really need a brand new car, or could you get another year or two out of your old one or buy a smaller used model for half the price?
An advanced degree can definitely help your career, and may even be required for what you want to do in life. But is it required right now? If you’re nervous about adding to your already enormous student loan debt, explore other options, such as gaining work experience for a few years to pay down existing debt while saving up for your advanced degree. While it’s easier said than done, consider finding a job that offers tuition reimbursement toward your graduate education. Also look into post-graduate scholarships, or consider working and going to school part-time to offset the cost of grad school.
12. Getting Rid of That Student ID Card
After graduation, your old student ID may not open doors to campus buildings or work in the vending machines anymore, but it’s not just a piece of collegiate memorabilia, either.
You can keep using your old ID to get student discounts at least until the end of the calendar year on everything from subway passes and airfare to museum tickets and Alex & Ani jewelry. And if there’s no date on the card, you may be able to continue scoring deals for as long as you look young enough to be in college.