These Are the 3 Biggest Money Mistakes You Can Make as a New College Grad

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Congratulations on finishing college. Read on for the money moves you don’t want to make. 

If you have just graduated from college, you have the opportunity to get off on the right foot financially — or the wrong one. When you are getting your financial life started, avoiding a few simple money mistakes could make all the difference in how big your savings account balance ends up being and how easy it is for you to build wealth.

To make sure you get on the right track from the start, be sure to avoid these big money mistakes.

1. Committing to large fixed expenses

When you graduate from college and start building your new life with your degree, you’ll want to make sure you don’t make too many commitments to pay big expenses.

If you obligate yourself to use a good portion of your income every month for things like rent and a car payment, you’re going to be stuck with these large expenditures for months or years to come — and they’ll interfere with your ability to do other things. If your income goes down, you could also struggle to keep up with these big payments and you may not easily be able to change them.

To avoid this, aim to keep your large fixed expenses to 50% or less of your income. And if you can keep fixed costs even lower, you’ll have a lot of extra money to help set yourself up for more financial security later on.

2. Taking on high-interest debt

Charging a big balance on your credit cards that you can’t pay back, or taking on any other high-interest debt, is definitely something to avoid once you’ve graduated.

While you may be tempted to go into debt to get yourself set up as a new grad — perhaps to do things like buy furniture for your new apartment or take an amazing trip to celebrate earning your degree — try to avoid the temptation to make any major purchases until you can afford to pay for them with cash.

When you go into debt, you make all your purchases costlier by tacking on interest charges. Worse, you steal from your future self by committing income you have not even made yet to covering costs you’re incurring today.

Unless you are borrowing for something that stands a good chance of improving your net worth — like taking out a loan to start a small business — try to avoid financing purchases right after you’ve graduated from college. Hopefully your post-degree earnings will be enough to help you cover the basics and even some luxury purchases over time without you having to commit to a creditor.

3. Waiting to start investing

Finally, not investing right away could be a huge mistake, as you would give up the benefit of having time on your side to maximize the compound interest you can earn.

The sooner you open an account with a brokerage firm and begin investing, the more you’ll be able to benefit from compound growth (which is what happens when you earn returns that are reinvested and that start to earn returns on their own).

If you start investing at 21 and want to be a millionaire by 65, the monthly amount you would need to contribute to make that happen is just $127 assuming a 10% average annual return. If you wait a decade until age 31, though, the amount to invest each month to end up with the same $1 million increases to $339.47. That’s more than double the amount.

The good news is, you can avoid all of these mistakes. You just need to make the commitment to invest, avoid borrowing, and keep fixed costs low. You have a unique opportunity to do those things since you haven’t established your money habits too deeply yet — so give them a try.

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