New Grads, Don't Make These 3 Big Money Mistakes

Graduating from college is a major milestone. Hopefully, your education prepared you to excel in your career. However, most colleges don't prepare you to succeed in personal finance.While it's common to hit bumps in the road, having too many money problems makes it harder to accomplish your financial goals. That's why it's critical to get informed ASAP.

"New grads simply have to take the time to educate themselves on personal finances," advised Levi Sanchez, a certified financial planner and co-founder of Millennial Wealth. "If you get on the right track early, it can be instrumental in setting yourself up for success and fewer headaches financially in the future."

To make sure you start off on the right foot, avoid these three big money mistakes after graduation.

1. Forgoing a Financial Plan
Hopefully, college helped you find a great job. But once you start receiving a paycheck, you're making a big mistake if you don't have a strategy for how to use your money.

If you don't make a financial plan, you might find that paying your bills leaves you with too little money to save. To avoid this problem, create a budget as soon as you know how much you'll earn. Your budget should include the following:

• Fixed expenses, such as rent, health insurance, car payments, and student loan payments
• Variable expenses for necessities, such as groceries and transportation
• Money to save for your future, including an emergency fund and retirement savings
• Variable expenses for "wants," such as entertainment and travel

It's also important to set financial goals. "Have a plan to get from where you are to where you'd like to be," advised Ilene Davis, a certified financial planner and author of "Wealthy By Choice."

You might decide you want to buy a house in five years or retire by 55. Calculate how much money you'd need to do those things. Then, set up automatic transfers to a retirement or savings account.

"By taking the time to get organized and automate your new cash flow from your job, you can set yourself up for future financial success," said Sanchez.

2. Waiting to Invest for Retirement
According to Davis, many new grads skip retirement savings because they don't want to tie up their funds or worry about something that's decades away. But she said new grads who don't have a retirement plan are making a serious blunder.

Saving for retirement is something you should do right away because investing early makes building a big nest egg much easier. "The earlier you start investing in a retirement plan, the more years of compounding you can take advantage of until retirement age," Sanchez said. If you miss years of earning compound interest, he added, that's time you can never get back.

If you start investing at 22, continue saving until 65, and earn a 7% return, you'll need to save $300 a month to have nearly $1 million by retirement, according to Student Loan Hero's investment calculator. But if you wait a decade and don't start saving until 32, you'll need to save almost $650 a month to end up with a similar amount.

If you have a workplace 401(k), it's easy to start investing. Sign up for your plan and set up automatic contributions from your paycheck. You might not miss the money if it doesn't land in your bank account.

If you don't have a 401(k), consider opening an individual retirement account (IRA). If you're under 50, you can invest up to $5,500 in an IRA in 2018. Robo-advisers make it easy to invest because you can set up automatic contributions and they do the work of diversifying your investments to minimize risk.

3. Not Taking Control of Your Student Loan Repayment
When you graduate from college, you typically have a grace period before you're required to begin repaying your student loans. However, you don't have to wait to start making payments.

In fact, Sanchez warned that delaying could leave you further in debt since interest continues accruing on most federal and private student loans. The longer you wait, the more interest you'll owe and the more your loan balance will grow.

To get a handle on your student loans, make a list of all your loans, lenders, and interest rates. Decide if you'll pay extra on your loans and how you'll prioritize payments.
You also should make sure you've chosen the right student loan repayment plan. If you have federal student loans, you might stick with the 10-year Standard Repayment Plan or opt for an income-driven plan if you have a low salary.

If you have a lot of debt at high interest rates, refinancing your student loans could be an option to make repayment easier and less expensive. Refinancing often makes sense if you can find a loan that offers lower interest rates than your current debt. However, if you refinance your federal student loans, you'll lose access to federal protections, including some repayment and forgiveness options.
The important thing is that you don't wait to deal with your student debt. Make a plan as soon as possible after graduation so your student loans won't hurt your long-term financial future.

About our Guest Contributor:  Christy Rakoczy is a personal finance writer at Student Loan Hero with a law degree from UCLA and a degree in business and marketing from the University of Rochester.  You can follow Student Loan Here on Facebook and Twitter.