Little has changed for this year’s college grads. Jobs can still be tough to find, and student loan debt is at record highs.
One difference: this year’s class is graduating in the age of “YOLO,” which, for those who haven’t heard of it, stands for “you only live once.” While the phrase implies life is about taking risks and enjoying today to the fullest, being a smart planner for the future can lead to a great life, too.
Before throwing YOLO at any problem, here’s money mistakes for college grads to avoid for making their only life a better one.
1. Pushing back student loan payments
While federal loan payments start becoming due six months after graduation, there are ways to stop or reduce payments right from the get-go. While this can help those who are truly having trouble making payments, it can be a danger to those who simply decide they want to pay less now without regard for the future.
For federal loans, ample opportunities are available to reduce student loan payments. Many student loan repayment options allow grads to reduce monthly payments, increasing total interest due and the term of the loan.
Various income-based repayment plans cap student loan repayment at 10%-20% of discretionary income, with remaining balances forgiven after 20-25 years. While this helps those who can’t make payments, it still ends up being an expensive and lengthy repayment option.
Unless you have a compelling reason to extend student loan repayment terms, don’t. A good rule of thumb is to put about 10%-15% of your income towards student loans. If you’re comfortably paying this much already, consider continuing to make monthly payments without altering your repayment plan.
2. Moving out too soon
Many grads are moving back home after college, with about 29% of Americans between the ages of 25 and 34 moving back in with parents. While this might seem undesirable or strange to some, it can be a smart money move.
Grads working to pay off loans or find a job should consider moving home to save money first. It’s better than moving out and going broke or racking up more credit card debt.
If you don’t want to live at home with parents, set a move-out goal instead. Mark it on the calendar and save like mad to move out of your parents’ place for good.
3. Adding instead of reducing credit card debt
According to a 2009 survey by Sallie Mae, college students who hold credit cards graduate with about $4,100 in credit card debt. When combining this with student loans, it can be large burden to pay back.
But don’t ignore the problem just because you don’t feel like dealing with it yet. Paying the minimum on credit cards, which typically charge much higher rates than student loans, will cost even more interest and prolong the time until pre-graduation balances are paid off.
4. Botching the job search
From applying to just any job to screwing up resumes, college grads can run into problems with their job search.
It’s not about sending out as many resumes as possible. A one-size-fits-all resume may be more likely to be rejected for any job.
Applying to any and every job decreases the chances you’ll start a career you enjoy. Instead, focus your search to the jobs you’re most interested in and put all your effort towards getting those positions.
Watch for red flags in your social media profiles, too. Remove anything that might disqualify you from a job. Use tools like Reppler to automatically monitor offensive language or photos you wouldn’t want potential employers to see.
5. Feeling entitled to “adult” things
Finishing college moves grads even further into adulthood. But that doesn’t mean you can have everything your parents and other adults have right away.
It’s silly to expect to own a house, cars, and other luxuries on day one after college. With a new job you might feel rich, but don’t forget: you’re likely still in debt and have little savings to show for even with your new salary.
Instead, start with a budget to keep your spending in check. Consider saving about 10% of your income before spending the rest. Gradually work towards the adult life that your parents and other adults enjoy.
6. Failing to negotiate salary
You might be a excited to get your first job, especially if the salary is more than you’ve ever earned before. But that doesn’t mean you should just jump at any offer.
Don’t be afraid to negotiate for your first job offer. If you’re the selected candidate, that means they want you. As long as you’re tactful and reasonable, negotiating doesn’t mean they’ll pull their job offer. At worst, they may say “no.”
Don’t lose your chance to negotiate now and be sorry you didn’t later. Raises are often given on a percentage basis, meaning the larger your starting salary, the larger the raise later.
For example, if you start with a salary of $40,000 and earn a 3% raise each year, you’ll be making just over $46,000 in the 6th year on the job.
If you negotiate a slightly-higher starting salary of $43,000 and you earn the same 3% raise, you’ll make a salary of almost $50,000 starting your 6th year on the job.
In five years, you’ll have made almost $20,000 more even though you only made $3,000 more with your initial salary.
7. Putting off saving for retirement
You’ve just finished school, so retirement may seem like a long way off. But it’s never to early to start saving. Thanks to compound returns on investments, starting early may be one of the biggest factors to being able to comfortably retire someday.
Don’t skip a 401(k) match or other retirement perks offered by your new employer. This is free money that’s just as valuable as a higher salary.
Even if you don’t have access to a 401(k), an IRA can be a valuable retirement tool. Contributions are capped each year, so once the year passes, your opportunity to fund your account is gone.
(image: ralph and jenny)