Now that you have successfully become a college graduate and are looking to move on, there are some things you need to know about personal finances. The more you know, the more you can avoid mistakes and losing money.
Being able to handle money well is one of the most important things you can do. It means that you will be able to enjoy life more.
When it comes to money, here are some mistakes to avoid.
First, About Working for Others
Although it is possible to get a job that pays more than $100,000 in your first year after college, the vast majority of new graduates will not have this privilege. Do not be too disappointed if your newly minted college degree only enables you to start at the bottom of the corporate ladder. The important thing is to do your best wherever you work. Strong job performance in a low-paying job can lead to strong recommendations for future jobs–enabling you to move up to better-paying jobs.
While most of us find ourselves working for others, you can usually make more money working for yourself. However, not everyone is cut out for this. If you think you are, learn all you can about the type of business you want to start before launching out. Talk to others in the same or a related business to help ensure success.
Traps to Avoid: Spending Without a Budget
If you don’t already have the habit of creating and following a budget, now is the time to start. Set up different categories for each area: rent, groceries, utilities, car, etc., and determine how much money you need to allot to each one. This will help you avoid spending money on unnecessary or frivolous things. Put savings ahead of optional expenses, and then determine how to use the rest of your money wisely.
Avoid wasting your hard-earned money by eating out a lot. Learn to cook meals at home and ask yourself if you really need those expensive coffees and lunches out.
Keep a record of where your money goes with a spending tracker of some kind. You can use a personal finance app, a personal finance spreadsheet, or some other tool that will quickly reveal how much is left in each budget category.
If you have no plan to save money, you can be sure that you will not have much in the long run. You will only end up in debt. Avoid this trap and learn to manage money better, by establishing a budget that includes saving.
Start setting aside part of your income in a savings account of some kind. Put your money to work right away earning interest. One of the best long-term savings instruments is a 401(K) or a Roth individual retirement account (IRA).
If your employer offers matching funds on your retirement account, take advantage of this by depositing as much money as you can, up to the maximum amount. This “free money” will build your retirement fund faster.
If your employer does not offer a retirement account, set up your own IRA. These accounts can give you tax breaks, too, enabling you to keep more money in your pocket.
Ignoring Your Credit Score
Not knowing what is happening to your credit score can affect you in more ways than you may realize. This can easily happen if you have a credit card or two and keep them maxed out.
Your credit score will enable you to get loans and credit cards with lower interest rates and better terms. Possible creditors will look at the score to determine how likely you are to pay them back. It will also affect your ability to rent an apartment, get a mortgage, and get better insurance rates.
To give you an idea of the difference a credit score can make, Nerdwallet provides an example. If you had a credit score of 620 and borrowed $200,000 on a mortgage, you would end up paying as much as $65,000 more than someone with a score greater than 760.
The best way to get and keep a high credit score is to have good money management, and pay your bills on time, every time—at least the minimum amount. You should also keep the amount of money you owe on credit cards equal to or lower than 30 percent of your available credit. Other factors are also considered; learn more at ConsumerFinance.
Employers and Your Credit Score
In addition, your prospective employer may take a look at your credit report before considering you as an employee. If it is low, you may not get the job. WalletHub reveals that employers in 39 states and the District of Columbia are allowed to run credit checks on potential employees. Eleven states ban credit checks, although even these generally make exceptions, such as for jobs that require handling money. CNBC says that at least 31 percent of employers run credit checks for all prospective employees. About a third pull credit or financial information for some job candidates.
An employer must get your written permission to withdraw your credit report, and will only be able to see your credit report, not your actual score.
Another mistake to avoid is investing your money too quickly or carelessly. Although there are stories of people making a lot of money quickly with investments, remember that the greater the possible payout—the more risk there is of losing your investment.
Make sure that your investment money is money that you can afford to lose if things do not go as expected. The stock market is highly volatile right now—and so are cryptocurrencies. Often, your money is not guaranteed to produce results.
Professional investors rarely put all their investment money into a single stock or other investment instrument.
Balance your investments by placing some of your money into safe investments. This will ensure that you will always have some protected money. Forbes suggests several safe investments, pointing to high yield savings accounts as among the best because these accounts are FDIC insured and highly liquid.
Other safe financial tools include CDs, treasury bonds, preferred stock, and gold. Forbes warns that real estate investments and real estate investment trusts can be risky, depending on the market.
Neglecting Health Insurance
Getting treatment at any medical facility can be quite costly—especially if it is for a medical emergency. Health insurance can help you avoid high costs that you could be paying off for years.
If you are currently on your parent’s health insurance policy, stay there if you can. Otherwise, see if your employer offers coverage. Getting group health insurance from your employer will be a cheaper option than an individual policy.
High Deductible Health Plans and Health Savings Accounts
If you are in good health, consider getting a High Deductible Health Plan (HDHP). This means paying more each time you visit the doctor, but it could lower your premiums.
Another advantage to the HDHP is that it can be connected to a Health Savings Account (HSA). An HSA can be very helpful if you have high out-of-pocket medical costs, or costs that are not covered by insurance.
Money put into an HSA account is tax-free (deductible) and builds tax-free interest. Unused funds are rolled over to the next year, building tax-free savings for medical needs later, says HealthCare.
If you have money in your HSA when you turn 65, you can spend it on anything you want—but it will be taxed as income if you aren’t spending it for a qualified medical expense.
The Epoch Times Copyright © 2022 The views and opinions expressed are only those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.