Fresh out of college and wondering “now what”? Whether you’re looking for a job or starting your own business, now is an important time for your finances. Check out these six financial mistakes to avoid.
Not having a budget
Ahhh, budgeting. Budgeting can be intimidating if you’re not sure where to start, or maybe you haven’t found the time to map out your finances. The most important and basic thing to know, is don’t spend more than you make. There are many different budgeting strategies out there, like a zero-based budget, 50/20/30 plan, three-category budget, and the list goes on. The best place to start, is calculate the amount of money you get after taxes. Next, factor in the costs you have to pay, like rent, utilities, cell phone bill, student loans, and car loans. From there, figure out how much you can afford to spend monthly, while contributing to your savings. Treat your savings like a bill you have to pay monthly. Even putting a little bit of money into savings will add up over time. Check out our easy budgeting calculator to help you track where your money goes each month.
Ignoring your emergency fund
Start putting money away today for a rainy day. Even if you’re an avid money-saver, sometimes-unexpected expenses can arise. Experts recommend having three to six months’ worth of living expenses saved. The better prepared you can be, the better off you’ll be when it counts. Start with evaluating your budget, to be sure you’re saving all the money you can right now. As you get money, whether it’s from a tax return or spare change, hang on to it. Consider putting it in a savings account, so it has a safe place to earn some interest.
Paying bills late
Trying to make ends meet can be a challenge, but a late or missed payment can cost you money or hurt your credit. Having good credit can help make your financial life easier. Having good credit can provide lower interest rates on loans, lower insurance premiums, and provide more opportunity when renting. Consider setting up automatic payments for regular expenses like car payments, utilities, student loans, and your cell phone bill.
Racking up debt
There can be some fear surrounding debt, or uncertainty about credit card basics and terms. But the main thing is to understand the pros and cons of debt. As mentioned earlier, having a good credit score can help with interest rates and premiums. When you’re applying for new credit, shop around for what will best suit your needs. For example, some credit cards allow you to earn reward points, and you can redeem for cash back or rewards. Be sure you only spend what you’re able to pay back to avoid interest charges.
Not planning for the future
If you had a dollar for every time someone says “save now for retirement,” you’d probably have enough to retire now. While you might get tired of hearing that, it’s the truth because of compounding interest. Compounding interest is when your interest, earns it’s own interest. Think about it like this: if you put $100 into a retirement account, that money would earn interest. The interest you earn from the $100 would go into the retirement account, too. Then, that interest would start to earn it’s own interest. Then the cycle continues! So imagine if you started right now, how much you could have by the time you retired!
Here’s an example: A 20-year-old invests $1,000 today. If they didn’t touch it until they retired at age 70, at a 7.2% growth rate, the money could increase 32 times. That would amount to around $32,000! Now here’s where it gets fun – if the 20-year-old were to contribute $83 a month until age 70, that would amount to $465,000! And that’s all from simply starting early, and saving as often as possible.
When investing while in your 20s, a good place to start is your employer’s retirement plan. A few good retirement accounts include a 401(k), Individual Retirement Account (IRA), or a Roth IRA. If your company offers a match, be sure you’re contributing enough to meet the match. Otherwise, that’s like leaving free money on the table.
Not asking your bank for help
It’s important to stay informed on what’s happening with your account. Many banks have tools and online platforms so you can easily manage your account. Like everything else, there’s an app for that. Consider downloading your bank’s mobile banking app, and enrolling in text message banking so you can see real-time updates for your account. These tools make it easier to check balances, pay bills, deposit checks, view activity, and keep up with your budget.
In addition to managing your account, see if your bank has a free online budgeting tool, like money manager. Online budgeting tools and apps make it easy to see a snapshot of your spending. These tools can automatically track your purchases, set spend categories, and allow you to set spending limits and notifications.
As always, we’re here to help you at any financial point. Contact us if there’s anything we can help you with, or if you have any questions.
 Smart Ways to Build Your Emergency Fund, Central Investment Advisors
 These Two Examples Illustrate the Magic of Compound Interest, Her Money
 What to Know About Investing in Your 20s, Central Investment Advisors
6 Financial Traps New College Graduates Should Avoid, American Bankers Association