Fat Wallet’s Top 5 Financial Mistakes New Graduates Make

Many college students are savvy with social media and the latest tech trends, but a large portion are left with a foggy financial path due to poor education throughout their childhood and early adulthood. The key to having a strong lifelong financial future starts in your 20's, and to do that you must eliminate these 5 Financial Mistakes:

1. Stop Learning After College

Just because college has ended doesn't mean you need to put down the books. Knowledge is truly the key to success, and the majority of knowledge out there is indeed FREE. Don't believe me?! Check out your local library and navigate to the Business and Economics section. There are hundreds of books written by different financial experts that give perspectives you may not have thought about before. I know this isn't the easiest answer you were looking for, but reading for even 10-15 minutes a day will greatly expand your financial knowledge.

2. Purchase a New Expensive Vehicle 

Many college graduates are still driving that piece of junk car from high school, but there is one simple question to ask when purchasing a new car: does it still run?

Purchasing a new car without completely paying for it in cash will often end up costing you several thousand dollars more than the purchase price of the car.

Here's an example of how much a car could cost each month:

Loan Amount: $25,000

Interest Rate: 5%

Loan Period: 60 Months (5 Years)

Total Cost of Car: $28,307

Not only does the new car cost over $3,000 more than what your purchased it for, the car's value decreases an estimated 15% to 25% right after your drive it off the lot.

Solution: Buy a Used Car with Little to No Financing

Many financial experts want you to purchase a car with all cash, but that may not be possible right after graduation. If you must finance a vehicle, choose a used vehicle that can get you from point A to point B, and nothing more. You can afford a nicer car in your later 20's/30's if you make wise financial decisions now, but remember that cars lose value over time, so ask yourself how financing is making YOU money. Short answer: it's NOT.

3. Opening Up Multiple Credit Cards

Although the 1-5% cash back rewards may seem enticing, is the reward worth paying 15-20% interest on for a late balance? If you do decide to open up a credit card, use it for smaller weekly purchases such as gas and groceries. This will allow you to establish credit, which can be beneficial when applying for a mortgage in a few years.

Bottom Line: If you decide to use a credit card, use your best judgement and only use for purchases you can already afford and pay off the total balance at the end of every month.

4. Not Paying Down Debt

I see many new college graduates who forgot about the student loan debt they were racking up while in school. There's a reason why banks have nice buildings and fancy offices...they are making money off of YOU! A typical interest rate for a student loan ranges from 3-10%, so this can definitely add up over time. The lending company will typically offer you a reasonable monthly payment, and may look like this:

Total Loan Amount: $10,000.00

Student Loan Monthly Payment Amount: $75.00

Amount Applied to Principle: $30.00

Amount Applied to Interest: $45.00

Outstanding Loan Balance: $9970.00

Although you paid $75 to the bank, they are only taking off $30.00 from your total loan amount. That is why it's important to pay down the principle as much as possible. An extra $25-50 a month towards your principle payment will save you hundreds, if not thousands of dollars worth of interest over time.

5. Upgrading Your Lifestyle:

Many college grads will graduate with a nice job that pays a decent wage, so usually the days of eating pasta, mac and cheese, and PB&J for dinner every night are over. This is completely fine, but I often see many new young professionals upgrade to a nice apartment downtown, go out to eat multiple times a week, and upgrade to the latest and greatest technologies. Although this is fine if you have money at the end of the month, make sure you are also investing in your 401k and saving for unexpected expenses. Trust me, you WILL have an unexpected expense.

There is no better time to set up the rest of your financial life than in your 20's.

If you have any other pieces of advice or topics you are interesting in covering, please send us an email at fatwalletfinance@gmail.com.