Graduation is a joyous occasion, but it also marks the point at which people step out of school and into the real world. That real world offers a ton of opportunities — and infinite chances to make enormous financial mistakes.
Many recent college graduates find themselves repeating the same financial errors that their predecessors made. Those mistakes do little more than sink them into debt, restricting their opportunities going forward as they carry that albatross around their necks.
[See: Dear Younger Me: 12 Financial Truths We Wish We Knew Earlier.]
Here are four common mistakes that recent college graduates make, along with some simple ways to avoid them. Follow this advice to give yourself the richest reward of all: financial and professional freedom.
1. Don’t bank on your “future self” bailing you out of today’s mistakes. Many college students buy into the assumption that a huge salary is just around the corner, so overspending right now isn’t a problem because that future enormous paycheck will take care of it.
Here’s the problem with that thinking: If that salary doesn’t come, you’ve put your entire life into a precarious spot — and for what? Most of the time, those choices are made in order to “afford” something that’s completely unimportant. Your “future self” is far from a guarantee. That great salary only happens if everything goes right. What happens if you’re passed over for that great job? What happens if you get sick? Your choice today makes those scenarios much harder than before.
If you’re ever thinking about making a purchase and part of that decision-making process involves considering the future salary that you may earn as a method of paying for it, walk away. Your “future self” is completely unreliable.
2. If the only way you can afford something is with the aid of a credit card, don’t buy it. Credit cards can be a powerful tool for making purchasing easy, but they also make it tempting to spend far beyond your means. They keep you separated from how much you’re really spending and eventually turn into yet another bill that drains your paycheck.
[See: 6 Ways to Treat Yourself on a Budget.]
A credit card can be a nice convenience. But if you’re considering making a purchase that only works because you have a credit card, skip it. If you’re ever tempted into doing this, even just once or twice, the credit card stops being a convenience and becomes a hindrance. Get rid of that card and live out of your checking account instead.
3. Don’t inflate your lifestyle when you get your first “real job.” When graduates get their first jobs, they often go through a period when they want to upscale their lifestyle. Suddenly, with cash in hand, they can afford to buy lots of clothes and lots of home decor and lots of gadgets. And these paychecks will just keep coming, right?
The drawback with that approach is that you’re throwing away your most valuable personal finance years without getting anything in return. The younger you are, the more valuable every dollar that goes into retirement savings will be, so you can get away with saving less throughout your life and still wind up with plenty of money. The younger you are, the more efficient your student loan payments and debt payments are, because the longer you wait around and the more minimum payments you make, the more interest you basically give away to the banks over the lifetime of the loan.
[See: 12 Ways to Be a More Mindful Spender.]
A much better approach is continuing to live in the same way you did in college (except with more nutritious meals). Only upgrade things that are necessary for your career and keep the rest of your spending in check. Use your remaining income to wipe debts as fast as possible and fund your retirement. There’s nothing better than seeing yourself at age 30 with no debt and enough money in the bank that you’ll never have to save for retirement again unless you want to retire early.
4. You will never be able to keep up with the Joneses, so don’t throw away money. Whenever you see someone else enjoying something, it can be tempting to want to have that thing yourself or — better yet — have an even nicer thing.
Here’s the thing: Other people really don’t care what you have. Trying to keep up with the things that other people own is a losing effort. The vast majority of people simply don’t care and the ones who are negative to you about it will be negative regardless of whether you keep up.
Don’t ever spend a dime to impress anyone else. It won’t work. Keep your money for yourself. Make a life that you’re happy with every day. The clothes you wear, the house you live in and the car you drive won’t change anyone’s attitude, so don’t make choices based on what you think others will be impressed by.
The first few years after graduation offer countless opportunities for incredible success and failure. Don’t fall into these easy-to-avoid traps and you’ll find yourself navigating a path to a tremendous future. Good luck.
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4 Critical Personal Finance Tips for Your First Years After College originally appeared on usnews.com
