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    3 Financial Mistakes To Avoid As A New Graduate

    Financial mistakes after graduation are quite common. From graduation to facing the real world, the learning curve is steep and there isn’t the luxury of time. 

    It is difficult to adjust to a new life, especially when you have to tend to your needs on your own.

    At times, entire paychecks can be spent on day-to-day expenses, thus leaving no room for immediate liabilities such as student loans. 

    Because they lack practical experience, these fresh graduates aren’t sure where and how to invest their hard-earned money.

    In this blog, we will help you understand the most common financial mistakes that new graduates make and how to avoid them.

    Not Establishing Good Credit

    Most fresh graduates aren’t able to manage their funds properly. This leads to missed payments and piling debts. A few missed payments at the initial stage of your career may not seem like a big deal, but each missed payment gets recorded in your credit history for up to seven years. 

    • For every missed payment, your credit score will take a hit and you’ll end up at the lower-end of the FICO score spectrum.
    • A low score will impact your chances of getting approved for loans in the future, the APRs that’ll be offered to you, and in some cases your ability to rent an apartment or get a job. 

    It is important to plan on building a strong credit history at the onset of your professional career. You need to work towards decreasing debts by making timely and full payments on or before the due date. Here are some other ways to build a robust credit history:

    • Open and manage an active credit account with a bank or credit union.
    • Make at least the minimum due payment each month without fail.
    • Don’t apply for multiple credit accounts at the same time. 
    • Keep your credit limit utilization on the lower side.

    Not Taking Life Insurance Into Account

    There are rarely any fresh graduates who bother to consider life insurance during the early stages of their career. 

    Technically, it makes sense not to invest in life insurance until you have dependents, but they overlook the amazing benefits of maintaining life insurance when you're young. 

    In fact, life insurance cover for a 22-year old is a better scheme than for a 50-year old. 

    • When you’re young, insurance companies will find it less risky to invest in you. This will lead to comparatively lower monthly premiums. 
    • You’ll have fewer commitments at the beginning of your career, and can use the funds to create steady savings for yourself while ensuring a secure future.
    • When you start a life insurance policy at a young age, the cash value of the premiums you pay will multiply over the years, thus allowing you to churn out huge returns in the latter part of your life.
    • The money earned from life insurance is usually tax-free income. 
    • The transition from college life to a self-dependent professional life can take a toll on your health. Medical expenses are costly if you don’t have insurance. It’ll help you cover unforeseen health related expenses.

    Not Considering Student Loans In Your Budget

    If you have graduated using student loans, you’ll need to start making repayments once you complete the grace period. The grace period is the perfect time to strategize a plan to deal with these debts. Without a budget, your finances will undoubtedly be impacted. 

    It is understandable to spend lavishly when you receive the paycheck after a month of hard work. However, if you keep spending without a plan, you’ll end up being delinquent on your ongoing loans. 

    Keep in mind that student loan repayments are fixed and recurring costs and should be a vital part of your monthly budget.

    • Understand what you owe. Contact the lender and check the total outstanding, interest rates, due dates, and all other details related to your student loan. 
    • Budget your expenses to meet all liabilities first. Stick to the plan and you’ll be able to clear off debts easily and without much stress.
    • Include an emergency fund to tackle unexpected expenses. Start by chipping off money from unnecessary expenses and stash away the cash for a rainy day.
    • Use online money management and budgeting tools to better track your expenses and plan on saving diligently.

    Bottom Line

    As mentioned above, a budget is the most important aspect of a fresh graduate’s life. If you skip it, chances are that you’ll fall into one or multiple debt traps without any option of bouncing back from them. 

    It is essential to include savings avenues like life insurance, a 401(k) savings plan, emergency fund, and more in your monthly budget.

    Above all, you need to work on building a strong credit history by making timely payments on student loans, credit cards, and any other debts.