Financial Mistakes Graduates Should Avoid
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By Bromwich+Smith Staff | 611 words | Reading Time: 3 minutes and 3 seconds | Date: 2022/07/15
How college graduates approach financial planning during their first years following graduating often sets the tone for their financial habits down the road. Here are five common financial traps that young adults can fall into—and how to avoid them.
1: Not Striving to Save
As recent graduates you may encounter sticker shock as you establish your new lives. If you are leaving the comfort of your parental home, entire paychecks can get spent on regular expenses—rent, utilities, car payments—and on furnishing your new nests. Even if you aren’t managing a place of your own you can still incur expenses, like transportation costs to work or student loan repayments; or you may feel obliged to start contributing to the family household budget.
Despite all these demands on your newly earned dollars, you should strive to save money, placing extra cash in a combination of investments is a great way to plan for contingencies. Usually a wise way to start is 2 - 3 per cent of your monthly income.
2: Money Spent Is Money Lost
As a graduate you will be earning your own money and this sense of autonomy can sometimes lead to unreasonable spending habits: on discretionary items or recreational experiences.
Paychecks provide an illusion of security; how you use your paychecks determines your overall financial well-being. Several actions can help create real financial security. One, as mentioned above, is investing: putting your money into assets that appreciate over time, which includes residential real estate (i.e., buying a home).
There's also investing in yourself to improve your prospects for growth and increased income. By devoting money each month to improve your performance as a professional, you can expect to earn more promotions and a higher pay over the long run. Some of these investments could be training, online classes, industry certifications, books, and seminars.
3: Letting Debt Get Out of Control
Uncontrolled spending is one of the factors that can lead to debt. If you are experiencing debt, manage your budget and timelines for eliminating your various debts, including school, car, credit card, and home loans. Ideally, it's best to pay off the debts with the highest interest rates first.
Discipline yourself in defining your plan to rid yourself of debt.
4: Becoming a Bad Credit Risk
Establishing a good credit history and acquiring manageable debt can help recent grads become financially credible to lenders when it’s time to take out an auto loan or mortgage. Manageable debt means that payments and the principal balance are easily affordable and that there is a target timeline for you to eventually pay it off. This is a great way to avoid becoming a bad credit risk.
5: Forgetting Life Insurance
Admittedly, life insurance from a financial standpoint, doesn't make sense unless you already have dependents. But if you do, there's a significant benefit to taking out a policy when you're young. Life insurance for a 22-year-old is a better proposition than life insurance for a 55-year-old especially when it comes to the cost of premiums.
The bottom line
Personal finance is a critical area to focus on especially when you're a graduate, for your mental and emotional well-being.
Congratulations on graduating, managing your money and building a solid personal balance sheet will become a critical priority as you navigate your career that will definitely have long-term benefits.
If you are facing financial challenges we want you to know you are not alone. Bromwich+Smith has a number of debt relief strategies to help you regain control of your finances and get your life back on track. Reach out today for a free, confidential, no obligation consultation. Bromwich+Smith’s Debt Relief Specialists are available by phone at 1.855.884.9243, or request a call back at contact us page. We want to see you flourish!