The few months right after college can feel like limbo. You’re finally out in the ‘real world’ after spending four or more years toiling for your degree, and no one is telling you what to do anymore. On one hand, it’s a truly liberating part of adulthood. But at the same time, it can feel like you’re a baby deer learning how to walk on its own.
Now, you have to find a job, learn how to budget your income, do taxes, pay attention to your credit score, and so much more. Finances can be one of the hardest things to learn after college. Now that you don’t have an allowance or financial aid to rely on, it can be difficult-and frequently daunting-to figure out how to manage your money right.
With that, start learning what not to do right after college when it comes to your finances:
- Not paying attention to your credit score
Your credit score will play a big role in the future decisions you make. For one, you need a good credit score to qualify for the best mortgage rates possible. The same goes for other types of loans, such as personal loans, business loans, and auto loans. Furthermore, your future landlords will also consider your credit score when you apply for rentals. And in some cases, employers also look at credit reports to see your payment history (although they won’t see your actual credit score).
While you don’t need to know what your credit score is all the time, it pays to know where you are. If you have not-so-good credit, you can start fixing it when you get your first job after college. As opposed to not knowing your credit score, having a general idea of where you stand can help you manage your finances better as you progress in your career.
- Not trying to lower your student loan payments
If you took out a loan to pay for college, student loan payments could eat up a considerable amount of your income for years. Fortunately, there are plenty of ways you can lower your student loan payments, such as:
- Applying for an income-based repayment plan
- Consolidating your loans
- Getting an extension for your repayment plan
- Refinancing your student loans
- Looking for repayment assistance
- Considering an employer that offers student loan repayment assistance
- Lifestyle inflation
Lifestyle inflation is often unavoidable when you graduate college and find a job. Typically, you would have to find housing, which is usually not as cheap as student housing. You would also have to travel a lot more now that you’re going to a job every day. And if you used to have a student meal plan on campus, your food costs are likely to increase once you start working.
While these aspects of your lifestyle are often necessary, you should avoid spending money on things you don’t need. When you start earning your own money, it can be tempting to spend on whatever you want. However, this kind of lifestyle inflation can set the stage for mountainous debt in the future, especially if you also have student loans to repay.
- Not saving money
Don’t just save what you can; make it a point to set aside a certain percentage of your income every payday and prioritize that over your wants. While saving money is not easy with an entry-level job, life is harder when you don’t have anything to cash out on a rainy day. Strive for a mindset of financial independence-now that you’re a working adult, you shouldn’t treat your parents as an emergency bank account.
Similarly, try to build an emergency fund as soon as possible with at least three to six months of living expenses. In this way, you have a financial fallback if your car breaks down, you lose your job, or you suddenly have to go to the emergency room.
- Failing to address bad money habits
In college, blowing your student aid allowance on drinks and pizza may bear little consequence other than having to eat instant noodles until the next deposit. But when you’re a working adult, being careless with your money can lead to dire outcomes such as late payments on rent. So, as early as now, start addressing your poor money habits before they consume your 20s-be it impulsive shopping or spending your paycheck in two days.
Building good financial habits right after college sets the tone for your finances in early adulthood. That said, it pays (quite literally) to avoid the common mistakes that can lead you to do otherwise.
