7 money mistakes recent grads should avoid

saving after college

A recent study from FinAid.org and Fastweb.com revealed that 1.7 million students are graduating this spring with an average of about $23,000 in student loan debt. This mounting debt, coupled with a struggling economy and bleak job outlook, has forced many graduates to live at home.

While these "boomerang kids" simply can't afford to live on their own, they can begin working towards financial independence by breaking the spending habits they acquired while earning a college education. A Capital One Financial Corporation survey of college seniors and recent college graduates stated that some of these habits include impulse buying and overlooking opportunities to improve their finances.

For students who want to become financially independent and move out of the family home sooner, below are some financial mistakes to avoid.

1. Refusing to move back home

Moving back home can seem like a step backward for recent college graduates, but it's a smart choice financially. Melissa Thornton, a community outreach/PR coordinator for the San Matteo, CA-based California Society of CPAs, graduated from UCLA in 2009 amid the worst of the economic downturn. She says one mistake graduates make is refusing to move home when you don't really have a job that supports you living on your own.

"I chose to move home after college to avoid this exact issue," says Thornton, who was about $9,000 in student loan debt at the time. "I knew it was the right choice mentally. But there's often pressure to be successful right away, and with this economy many more students are faced with this struggle."

Thornton, 23, lived at home in San Diego from June 2009 until February 28, 2011 until she landed her current position this past March.

"It's tough if you want to be independent," she says. "You feel a great sense of accomplishment of earning a degree and you want to be successful, and take the burden off of your parents of having them supplement your life financially. Creating budget goals to enable yourself to move out and viewing it as an opportunity to have more options when you do land a great job can be helpful for not getting down on yourself."

2. Losing track of your money

Track every single dollar you spend, whether in a diary, notebook, spreadsheet, mobile app, or even online banking.

"We've found that students' and recent grad's money mistakes are caused more often than not simply by a lack of spending awareness," says Jody Leidigh, vice president and program manager for University Banking at PNC Bank. "Frequently, when people see what they actually spend, they're shocked--'Did I really go out to eat nine times last week?'"

Thornton agrees and notes that keeping track of your expenses can help you avoid expensive overdraft fees and keep track of where your money is going.

"Lots of recent grads don't use checks, instead they use debit cards and cash and never encounter the usefulness of a check register," she says.

3. Living beyond your means

Attempting to live a lifestyle that exceeds affordability is a mistake that can get recent graduates engulfed in debt fast. To avoid this pitfall, the National CPA Financial Literacy Commission, which oversees the Feed the Pig (as in "piggy bank") program with the Ad Council to help 25-34 year-olds make better money decisions, recommends to carefully assess all related costs when making a major commitment, such as signing a lease on an apartment.

This means determining if you can live comfortably after paying not only rent, but all monthly living expenses--utility bills, phone charges, student loan payments, car payments and any other financial obligations you may have.

"Ensure that your income is sufficient to cover regular financial commitments with enough left to cover costs, such as food and gas," says Jimmy Williamson, a commission member of the National CPA Financial Literacy Commission.

4. Letting bills slide

Getting behind on payments and bills is another mistake you can't afford.

"It's important to distinguish between living expenses and luxuries, and take care of living expenses first," says Williamson.

Delaying or neglecting payment on a monthly bill will only result in the arrival of another, more daunting bill.

"If paying a $150 utility bill now seems unappealing, owing $300 plus late fees in a month will be even worse," says Williamson.

5. Not saving

According to the Capital One Financial Corporation survey, college graduates are not saving their money. Consider that:

  • Only 43% of respondents say that they're putting money in savings on a monthly basis or more;
  • One-third (36%) admit they're not setting aside money for savings on a regular basis; and
  • If given $500 to save or spend, 74% of the young adults surveyed say they would spend at least $100 of it and 44% would spend at least $300.

"Always save something," says Kevin Gallegos, vice president of Phoenix operations for Freedom Debt Relief, LLC. "When receiving any extra money from unexpected overtime, a gift, or even activities, such as a yard sale, many people will blow it on a new toy or clothes. If you stash the extra in addition to the regular pre-determined amount, you'll see your savings take off."

In the early years of employment, Gallegos acknowledges that times can be tight. But a smart graduate will begin saving part of every paycheck.

"Even if it is only a few dollars, young people should get in the habit of putting money into a savings account daily, weekly or monthly," he adds. "This money can form an emergency fund, and as it grows can be invested in a home or retirement."

6. Not negotiating your first salary

Ornella Grosz, author of Moneylicious: A Financial Clue for Generation Y, says another mistake you can make after graduating is not negotiating your first salary.

"This doesn't mean if you're offered $40,000 per year, you should request $100,000," she says. "Sometimes the salary is fixed, so, consider other benefits, such as work-from-home flexibility, health and dental insurance, vacations, sick and vacation time off, and education reimbursements. Salary is only part of the total compensation package."

She adds that recent grads should know how their skills will benefit the organization. Also, they should identify the needs of the person who interviewed them and how they can be the solution.

"A mistake the recent college grads make is not emphasizing their internships, technical expertise, summer jobs that can positively impact their ability to do the job," she says.

7. Taking on too much debt

With the economic times, Grosz says that debt has been associated with having a negative impact on personal finance. However, if recent grads don't establish any credit they will find it to be difficult to get a loan, especially with favorable interest rates.

"At the same token, avoiding credit card debt that can lead them to digging a hole in their personal finances is important," she says.

When using a credit card, she recommends only charging what you can pay off, as you are gradually building your credit.

"You should avoid rolling over a balance because interest is compounded," she says. "By paying the minimum on a credit card, you're avoiding to pay it off in a shorter time period, costing you more money."

It's also important to choose your credit card wisely. Rather than just accepting every card offer that comes in the mail--or tossing them all--do your homework and find out which card is the best credit card to meet your financial goals.

If you want to develop a good credit history without plummeting into serious credit card debt, for instance, choose a card with perks that work for you and no annual fee. For instance, there are many cards with cash back rewards for basics, such as gas and groceries. If you are approved for a card like this, you can then use it exclusively for gas and groceries, pay those things off each month, and reap a few rewards, such as 2% cash back. Using a system like this to cover expenses you usually pay for with cash, allows you to stay on budget, build a strong credit history, and to save a percentage on your monthly expenses. To research the best credit cards for you online, a site like CardRatings.com can help you sort by your monthly spend and your ideal card's traits, such as low interest or gas cards. (CardRatings.com is owned by Schools.com's parent company, QuinStreet.)

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