Many graduates are eager to find work when preparing to leave college; however, there are a few common mistakes that young professionals make. As they begin their adult life, they might make choices prematurely, or fail to weigh the consequences of their decisions. Sometimes, bad choices can set them back financially. To avoid any setbacks, graduates should recognize common mistakes that young professionals make.
1. Putting off Student Loan Debt
Since student loan repayment doesn't start until 6 to 9 months after graduating, some graduates don’t think about their debt. And once repayment starts, some opt to defer their loan payments for several years. This, however, is one of many common mistakes that young professionals make. Student loan interest accrues each year that the loan is in deferment or forbearance — adding to the total balance.
2. Moving out Too Soon
Once young professionals snag their first real job, moving out is usually the next thing on the list. However, moving out too soon can create financial hardship for some young professionals. They could end up living paycheck-to-paycheck, and have little cash for emergencies and savings. By staying home, there's the opportunity to pay off any debt that accumulated while in college (credit cards and student loans), and increase their cash reserve.
3. Too Much Credit Card Debt
If a young professional moves out, he or she may have little funds for furniture. As a result, she might rely on credit cards. Credit cards may also be used to purchase clothes for work. It’s okay to use credit cards — as long as balances are paid in full the following month, or within the next couple of months.
4. Not Understanding Retirement Options
Retirement isn’t right around the corner, but this doesn’t mean that young professionals should put off planning until their 30s. The earlier they start saving, the better off they’ll be. Sadly, some young professionals don't fully understand their retirement options, nor do they receive the advice they need. Therefore, some delay early planning.
5. Skipping Life Insurance
Similar to retirement planning, life insurance isn’t on the minds of some young professionals They feel that they have plenty of time to think about insurance. However, life happens, and if a young professional has a family, a spouse or debt, he or she needs to prepare accordingly. Maybe purchase a life insurance policy from a financial planner, or see if their employer offers any type of coverage.
6. Not Saving Enough
Young adults enjoy a good time with friends, and when they’re having fun every weekend, they're less likely to save their money. It’s important for young professionals to develop a good savings routine early. It’ll become second nature and they’ll build a nice nest egg for emergencies and other unexpected expenses. Ideally, they should stash 10% of every paycheck.
7. Putting Kid's Education over Retirement Planning
Young professionals with children may start saving early for their kid's college expenses. This ensures that there’s enough cash for college. However, they shouldn't put their kid’s education over retirement planning. If they have to pick one over the other, they should choose retirement. The truth is, there are several ways to pay for college, but only a few options for retirement planning.
As a young professional, you're undoubtedly excited to start your new career and perhaps a family. It’s common to make mistakes during early adulthood. But if you recognize these mistakes, you're in a better position to make wiser decisions. What other mistakes do some young professionals make?