7 Financial Pitfalls that College Grads Should Avoid

A young woman holding her diploma in a cap and gown hugs her parents.

Life after college can be an overwhelming and scary experience. Your whole world is about to change and now you’re on your own financially. How you handle your money during the first few years after graduation will determine your financial habits. Here are some common money pitfalls to avoid as you strike out on your own.

1. Failing to Keep Track of Your Finances

Creating a budget acts as a roadmap that helps you stay on track financially and reveals where your money is being spent. Working within your budget will help you ensure money is available for essential household expenses first. You can use a budget to identify wasteful spending and then take corrective action. It can also show areas where spending can be reduced or reallocated to pay down debt. Once you get into the regular habit of budgeting, it becomes easier to maintain and you’ll start to see areas where you can do other things like save money and work toward your financial goals.

2. Spending Too Much

Now that you’ve started earning money from your first post-college job, you may be tempted to spend that hard-earned cash on things you’ve always wanted. But being realistic about the lifestyle you can afford is important if you want to ensure your financial future. Take a look at your first few paychecks to understand how much you’re making after taxes, and benefits like health insurance and retirement savings are subtracted. Next, compare the net pay amount you receive each month to how much you’ve been spending. If you’re spending more than you’re making, you’re staring down a bad road.

3. Accumulating Credit Card Debt

Having debt isn’t necessarily bad, especially when you’re young. You need to build credit and become financially viable to lenders for mortgages, vehicles, and other important purchases. However, it’s important to keep your spending under control or you’ll quickly find yourself in a hole. Make sure your debt is manageable and you have a strategy for paying back the money you borrow. Set a schedule for paying down and eliminating debts such as school loans and credit cards. Pay off the smallest dollar debts and debts with the highest interest rates first.

4. Not Saving for the Future

Even if you score a good job right off the bat, you may feel overwhelmed with living expenses. From rent payments to utilities, to transportation and grocery costs, to student loans, there’s a lot of financial responsibility to juggle. But despite all these new financial obligations, you should think about putting money away for larger purchases such as a house or car, or for a vacation you might want to take. Open a savings account and start small. Try putting $20 a month into the account to get in the habit. You can increase that amount over time.

5. Avoiding an Emergency Fund

The current COVID-19 pandemic has certainly taught us that having money for emergencies is essential. But there are many other unforeseen events in life, such as accidents, injuries, and lay-offs that you should be prepared for. Start putting some money away that’s dedicated to emergencies, no matter what the amount. Your ultimate goal should be to save three to six months of living expenses.

6. Putting Off Student Loan Payments

When you graduate and enter the real world, you typically have a grace period to start paying your student loans. That’s a great time to come up with a strategy for dealing with the debt. Without a solid plan, your financial future could be affected. Here are some planning steps to consider:

Loan Details 

Find out the details of your loans, specifically how much you borrowed, what your interest rates are, the first payment date, and whether you have a grace period or not and how many years your loan term runs. Use a student loan calculator to estimate your monthly payments and see how much interest you’ll be charged. 

Jobs that Lead to Loan Forgiveness 

When considering a new position at a company, review all its available student-loan forgiveness options. The Public Service Loan Forgiveness program can forgive the remaining balance on Direct Loans after 10 years of working in a nonprofit, government agency while making qualifying monthly payments, for example. Other professions may also qualify for loan forgiveness.


With a decent credit score and income, you might qualify for student loan refinancing, which will let you restructure your debt, the terms of the loan, and you’ll possibly get a lower interest rate. Before applying for refinancing, make sure to research it.

Automatic Payments 

Some financial institutions offer a discount on interest when you sign up to pay your loans automatically. Try contacting the student loan issuer and ask about payment options. Along with potentially saving on interest, auto payments will also help you avoid missing a payment. 

7. Failing to Put Money into a Retirement Fund

It’s perfectly understandable if retirement is the last thing on your mind. After all, it’s a long way off. But the more you save now, the longer your money will have to grow. If you start now, when you do retire in 40+ years, you’ll have a nice nest egg.

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