5 Mistakes College Graduates are Making Right After Graduation

It can be an eye opening experience when you first graduate from college and lose many of the safety nets that you have grown accustom to having during school. Now that you are on your own, you have to start thinking about your financial future. Many football coaches are famous for saying that the Super Bowl isn’t won in the spring every year but early in the season with hard work and dedication in the gym and the practice field. The same is true for your finances.

cut credit card

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The early retirement of your dreams isn’t set up in your 30s or 40s. It isn’t a lightbulb that comes on after a few years of working. Laying the foundation for a great financial future starts immediately after graduating from college when you land your first job. You have to start that early, and college graduates are making several key mistakes that are setting themselves up for financial disaster early own or at least a lifetime of working and a slave to debt.

Here are five mistakes that college graduates need to avoid right now to help start their lives off on the right foot.

5 Mistakes College Graduates are Making Now

Not Investing for Retirement Right Away

Delaying your investment for retirement even by just a few years can cripple your savings thanks to the power of compounding interest. For example, a recent college graduate investing $5,500 in a Roth IRA from the time he or she is 22 years-old until the age of 65 will accumulate over $2.1 million by the time he or she retires assuming an 8% annual rate of return.

If you were to delay starting your investing for just five years, you would only amass approximately $1.4 million for your retirement nest egg. And, waiting 10 years until you think you can afford to start saving for retirement would only allow you to accumulate just over $936,000 under these same assumptions. Waiting even just a little bit before you start investing can be devastating. You have to start immediately!

Not Having a Budget

One of the biggest mistakes that young people make is not having a household budget. Many people simply think that since it is only one person and not a family, they do not need a budget to monitor their spending, savings, and investing. This is the most critical time where debt can stunt your financial growth for decades to come. One of the most effective ways to ensure that you spend less than you earn is to have a written budget that you follow.

Living Above Your Means

I made a vow to myself after I got my first job after graduating with a Bachelor’s Degree that I would never eat Ramon Noodles again. Now, there’s nothing wrong with that, but after living on it for four years, I personally do not want to see another one as long as I live. So, it is okay to spend the money that you earn on things like good food, eating out at restaurants, and traveling.

You have to know the limits of your budget. You have to live within your means. Maybe that means that you rent an apartment instead of trying to buy a house. Maybe that means that you continue driving your beater car while saving to pay for a new car with cash. Spending more money than you earn is a recipe for credit card debt and other consumer loans that will take years to pay off.

Moving Back in with Your Parents

Believe it or not, but moving back into your parents home after graduating from college is a mistake. There is little incentive far too often for you to want to leave the comfort of home if you go back. The best thing you can do for your long-term financial health is to move forward with your life and not return home to live.

There will be a few exceptions to the rule where you will have to, but prior planning before graduation, job searches early, and the willingness to take more of an entry level position commiserate with someone who has just graduated college will set you up with the right skills, self-confidence, and work ethic needed to succeed on your own.

It is far too easy to move home after graduating under the guise of saving for a down payment or saving for some other reason. Far too many people slip into the old habit of expecting a parental bailout and a life of not saving and living above your means. Moving out is a forcing function that will ultimately lead to you taking control of your financial future with better success.

Listening to Bad Financial Advice

There is a lot of bad financial advice that is floating around, and many college graduates are often the targets because of their inexperience. Be careful who you deal with and the types and amounts of fees that you pay for services. For example,

  • You should stay clear of mutual funds and investment advisors who ask you to pay upfront load fees on those mutual funds.
  • You should be skeptical when an insurance agent tries to sell you a large whole life insurance policy.

I can remember being suckered into both life insurance and front end load mutual funds right after graduation and lost hundreds of dollars on this bad financial advice.

Have you made a financial mistake right out of college, big or small? I’d love to hear other examples on what you would have done differently. What would you have told your 22 year-old self in order to escape a financial mistake if you could go back in time?

About the Author

By , on Feb 13, 2013
author
is a financial planner and personal finance writer with a Masters degree in finance and a graduate certificate in personal financial planning. He spends his time answering money questions about investing, retirement, insurance, and other money topics on his site, Money Q&A.

Leave Your Comment (10 Comments)

  1. Alex says:

    Paying for an upfront load on a mutual fund is not a bad thing at all. It all depends on what you are trying to accomplish. The internal asset management fees are significantly lower over the long run vs a no load fund for example ( no loads charge larger management fees per year, the company has to make money!). The break even point is about 7 years… Meaning front end funds are a better buy than no load funds if you invest longer than 7 years ( and your article is about long term investing).

  2. I would have told my 22 year old self to create a budget immediately and don’t use a credit card for purchases. I know credit cards have their place for some, but I found I spent too much with mine. My financial life has been far better since I cut mine up.

  3. Russell Kith says:

    I agree with Long- the most important thing to remember coming out of school is budgeting within your means. So many people are under the impression they will be making high 5 figure salaries within a few years and that it is OK to spend now, to pay back later. This can be attributed to travelling (vacations)- accommodations that are out of their pay range, clothing, eating out, etc. As soon as you leave school and get your first job, create a budget that FITS your financial situation. This will teach you the value of a dollar and also teach you how to stick to a budget!

  4. Ashley says:

    This is great advice! Primarily, my focus was to find and land that entry-level job soon after graduating college so that I could start paying those exciting college loans. I don’t think I had much after all other monthly bills to invest but if I did, that would have been a great thing to do!

  5. Jonathan says:

    The point you make about not investing for retirement straight away is absolutely right! It’s so important to start early and yet it can be tempting to not bother because you have other more immediate worries. The earlier you start the better

  6. Nick says:

    If only us older ones could go back and talk to our younger versions of ourselves. The best we can do is to try (if they will listen) to teach our kids good financial common sense while they are still in high school.

  7. krantcents says:

    My children moved home for a short time to save for the moving costs such as first, last and security. They are successful adults now and it didn’t hurt them at all.

  8. Long says:

    I think the biggest mistake recent grads make is living beyond their means. I’m not sure if it’s a feeling that they deserve it, or just the stigma of the “Me Generation,” but I have witnessed young adults live like they were millionaires – when in fact they were making a low 5 figures.

  9. Emma says:

    Great advice. When I graduated, I moved out from my parents’ house, but I continued to use their credit card (which they gave me when I went to college – lucky me) for a couple of years. In hindsight, this was a bad idea as I had no incentive whatsoever to find a job and start supporting myself, so I basically wasted those two years.

  10. Caesar F says:

    I would’ve told my 22 year-old self to start looking for a job while you are in the end of your stretch in college and save up to get a new car so you would be able to get more money from your current car when you sell it.

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