You’re fresh out of college and somehow managed to land a job. Now all you want to do is relish in your employed glory and treat yourself to the indulgences of your entry level compensation. Be sure to steer clear of the following money mistakes, which can put a damper on your financial future.
5 Money Mistakes 20-Somethings Make
1) Failure to Budget – Its extremely difficult to figure out how your checking account balance seems to magically disappear each month if you are not tracking your expenditures. Awareness is the first step in creating change. If you are overspending, you need to make yourself aware of the problem in order to determine where you need to cut back. Even if you are staying within your desired “budget” it is still important to have an acute sense of where you choose to spend your money.
2) Delaying Saving for Retirement – Time is going to pass whether you want it to or not. By investing early and often, you take advantage of compounding, allowing your money to grow over an extended period of time. In addition to the benefits of compounding, you can also receive tax breaks, and take advantage of employer matching contributions. Get into the habit of deferring a portion of your salary into an investment account each pay period. I recommend establishing an automatic transfer – its painless, easy, and keeps you accountable!
3) Not Taking Advantage of FREE Money – I’m talking about your employer’s 401(k) match. If you are lucky enough to have a match on your retirement plan contributions, at the VERY minimum contribute enough to receive the entire match. If you are worried about vesting requirements, the money you contribute yourself is always 100% vested. Your employers matching contributions may vest over a number of years, but you are only able to receive the funds if you contribute presently. DO IT!
4) No Emergency Fund – Having money set aside for a rainy day is absolutely essential. You don’t want to have to turn to debt (or your parents for that matter) in the event of an emergency. There are different opinions on exactly how much to save – some say 3-6 months of expenses, and others even longer. If you are just entering the workforce and have limited resources, I recommend putting away 2-4 months of expenses in a savings account at a minimum. What happens if you get a flat tire, break a bone, or have to fly across the country for a funeral? Establishing an emergency fund will keep you covered.
5) Incurring Mindless Fees – Don’t let yourself get charged for avoidable fees. If you have money available, pay off your credit cards each month to avoid accruing interest. Additionally, seek out a bank that will waive your ATM fees and does not charge a fee for dropping below the minimum required checking account balance. Finally, monitor your checking account balance to avoid getting hit with overdraft fees.
Acknowledging these mistakes, and realigning your finances, can get you started in the right direction after college. By avoiding these pitfalls, you will be on your way to financial success! You can check out more on Money For All Blog.