As a college graduate, the sooner you start budgeting and planning for your financial future, the more financially stable you will be in the years to come. On the other hand, if you don’t think about your finances, you could end up making mistakes that could seriously impact your finances. Here are four mistakes you need to avoid.
1. Buying a Home Without Understanding How Interest Rates Work
Once you’re out of college and have secured a great job, your thoughts will probably turn to buying a home. But too many college grads make the mistake of proceeding with getting a mortgage without knowing how interest rates work. If you want to stay in control of your finances and not run into potential serious repercussions, it’s vital you have a good understanding of mortgage interest rate basics. If you don’t, your monthly payment could change and you wouldn’t be prepared.
Without understanding your interest rate, it could also take you a lot longer to pay off your loan. For instance, you wouldn’t know how best to make additional principal payments. You could also lose out on the opportunity to refinance your mortgage later on. When you understand interest rates, you can then use a mortgage rate comparison site to compare your rate with all the current rates. At the end of the day, if you’re getting a mortgage, understanding the interest rate is pivotal for making the most of your money.
2. Overlooking Student Loans When Calculating Your Monthly Living Expenses
As a college grad, you probably have student loans to pay off. Having debt can have a major impact on your finances. For instance, you may have to settle for a low-rent property when you first come out of college because you will need to spend a proportion of your income on paying off your student debt.
While most student loans have grace periods, it’s a mistake to not worry about your student loan during that grace period. Otherwise, you could find yourself living beyond your means when it comes time to start paying off your debt. Furthermore, having debt can lessen your chances of qualifying for loans like mortgages. So, the sooner you address any debt you have, the better.
3. Not Considering Loan Forgiveness Options
Whether you start paying off your student loan after the grace period or immediately, it will take time to pay off. But there is one option known as loan forgiveness that many grads don’t even consider. If you’re not familiar yourself, loan forgiveness is basically an opportunity to not pay all or some of your student loan.
There are various types of programs that you can engage with to become eligible for loan forgiveness. For instance, you can get loan forgiveness for choosing a job in a specific field or location, volunteering, or serving in the military.
4. Not Saving Early for Retirement
Sure, you’re young. So, retirement is probably the last thing on your mind. However, if you don’t plan ahead, in a few years’ time, you will wish you had. You only have to do the math to see how advantageous it is to start saving for retirement early. For example, basing the annual rate of return on 7%, a person who starts saving at the age of twenty-five will more than double their retirement fund by the time he or she retires compared to someone who starts saving at the age of thirty-five.
Even college grads who do start saving straight away can make mistakes, though. One of the most common is not taking advantage of your employer’s match. If you work for a company that matches retirement contributions, you basically get free money for your retirement fund.