College just graduated? 5 Money Mistakes to Avoid – The Motley Fool

After years of study, quarterly work and exams, you finally graduated from college with a degree in your pocket. Now, all you have to do is determine how you will navigate the real world and manage the money you hope to win soon. The good news? By avoiding major mistakes, you can put yourself on the right financial footing. Here are some mistakes you should avoid at all costs.

1. Do not follow a budget

Without a budget, you will have no way of knowing where your money is going, month after month. Once you've got your first job, take a little time to build a budget that maps your monthly expenses and compares your total expenses to your total earnings. This way, you will see if you are spending too much in certain categories and you will know where to cut your expenses. Do not forget to include in your budget a cost-effective line item – you need to prioritize it at every stage of your life.

2. Do not have emergency funds

The fact that you are new to the world of work does not mean that you will not face your share of the financial problem. You could lose your job soon after signing your lease, hurt yourself and accumulate medical expenses, or face a problem that you can not afford. Without money in the bank, you may not have any choice but to charge such fees on a credit card, accumulate costly interest, and damage your credit. at the same time. Therefore, a better bet is to set up an emergency fund – a fund sufficient to cover at least three months of essential living expenses and, ideally, a value equivalent to six months. In this way, you will have money to exploit when unplanned bills appear.

3. To take too much rent

In general, your housing costs should never absorb more than 30% of your income, whether you rent or buy a house. Now, if you are a recent graduate, it is likely that you will not become acceding to the property anytime soon, which means that you will benefit from a predictable monthly payment for housing. (Your rent will be fixed, while homeowners will incur variable costs, such as maintenance and repairs.) However, you do not want to rent a house too expensive, because if you do, you will have less money. Money for other important tasks, such as saving, student loan payments and, oh yes, the fun things you will want to enjoy during your free time.

4. Do not understand your health benefits

Hopefully you will be hired by a company that offers a strong health insurance plan, with affordable premiums and low deductibles. Before you start using this health plan, however, make sure you understand what your benefits are. For example, you may need a referral to consult a specialist or you may need to stick to the network providers to ensure your services are covered. If you do not understand something about your health plan, dial the number on the back of your insurance card and talk to an agent. Otherwise, you could end up with unwanted medical bills on your hands.

5. Do not register for the 401 (k) of your business

If your company offers a 401 (k) plan that you are eligible for immediately, it is worth subscribing for two reasons. First, most employers who sponsor 401 (k) donors also equalize the contributions of workers to varying degrees. Therefore, if you do not participate, you risk losing free money. Second, if you start putting money aside for your retirement right out of college, you will leave much more time for your savings to grow. Imagine that you start raising $ 200 a month in a 401 (k) from age 22. If you continue for 45 years, your investments earn you an average annual return of 7% (which is achievable if you are preparing to accumulate shares), you will end up retiring with $ 686,000. Do not wait until five years to start saving and you will only have $ 479,000 for your golden years. Admittedly, it still represents a lot of money, but far from the $ 686,000.

The money movements you make after graduation are critical to your long-term financial success. Avoid these mistakes and you will be in gold.