Millions of college graduates are starting their careers with extreme uncertainty right now. They are not only graduating during a global pandemic, but they are also navigating the challenges of finding a job when tens of millions are jobless. Many of you reading this are upset, worried, and have no idea what to do next, but I want you to know it will be ok.
I’m not here to tell you to get a job, start a side hustle, or live in your parent’s basement. We’ve all heard enough of this and right now it may very well be out of your control. Whether you’re navigating the job market, taking some time off, or lucky enough to be starting your career you need to spend some time learning about money and be extra careful with the decisions you are about to be making.
Every decision you make involving money has significant compounding effects that will either make your future life better or worse.
I graduated from college in 2014 and to be honest, I’m still recovering from some of the money mistakes I made back then. You’re going to make some mistakes and that’s ok, it’s a learning process. Nobody is perfect!
Here are some of the money mistakes I made in my first year after graduating college:
I purchased a brand new $23,000 Honda Civic within weeks after graduating because I thought I had “earned it”. I moved to Arlington, VA to start my first job but never actually needed my car as I could take public transit or walk to everything I needed. Stupid I know!
Cars are not an investment, they are a liability, and buying a new car was a big mistake for me. Right now, car dealerships are desperate for sales and many are offering 0% financing and no payments for 90 days. Sounds great, right? Avoid the temptation, as once you drive that new car off the lot, your car will lose nearly 20% of its value in the first year due to depreciation.
Hertz just filed for bankruptcy and many are expecting car prices to decrease. The car market is about to experience a significant oversupply of inventory so if you do need to purchase a car, wait a few more months and you might get a really good deal on either a new or used car.
What would I do differently? Buy a cheaper used car for $10,000 or less or no car at all. Had I selected either option, my net worth today would be $60,000+ higher just from investing. Use your money to buy assets, not liabilities.
After I got the car, I followed it up by signing my first apartment lease. Living in a high cost of living area with a roommate I was spending close to $1400/month for rent at the time.
Before taking a job, consider the cost of living in that city to ensure you’re not overspending. A good rule is to spend no more than 25% of your take-home pay on housing. Remember, it’s not as easy as taking your salary and dividing it by 12, you need to factor in taxes and other expenses that come out of your paycheck when you calculate this. You can calculate your take-home pay using ADP’s calculator here if you're not sure yet.
When you’re just starting out and secure your first job, it’s easy to make this money mistake, especially when you are moving somewhere new.
After learning how to reduce my housing expenses and house hack, I’ve reduced my housing expense every year for the past six years. Despite the rising cost of living in my area, my housing cost is 42% less than what I was paying in 2014.
What would I do differently? Spend more time researching the city you are moving to so you can find cheaper housing and get more roommates. Renting a house or townhouse can significantly reduce your housing expenses while also introducing you to new people in your new city.
My student loan repayment started 2 months after I moved into my new apartment. Initially I only paid the minimum balance due each month, but a few months later I came to the realization that I disliked my job and wanted to do something different in life.
Student loan debt can hold you back from making life-changing decisions because you are more dependent on a stable monthly paycheck and benefits. I wanted to try my hand at entrepreneurship and get out of the rat-race, but student loan debt held me back. Once I realized this I started budgeting and cutting back as much as possible and it changed my life.
Having the privilege of a high paying job and good benefits, I was able to live frugally in order to pay off my student loan debt in just under a year while also strengthening my emergency fund. Once I felt financially stable, I quit my job and was able to go all-in on entrepreneurship, having since helped grow multiple businesses to over $1 Million in annual revenue.
It angers me that student loan debt is keeping millions of people in jobs they don’t like and holding back so many entrepreneurs from starting businesses and changing the world.
What would I do differently? This might come as a surprise but, looking back at it I’d slow down my student loan repayment so I could invest and save more money. With a low-interest rate and low student debt amount I would have made back the interest and paid a good chunk of the debt just by investing.
Your situation is likely much different than mine so consider all the options for student loan repayment. There are so many great resources and programs out there so take some time to understand them and then make a plan to tackle your student loans. One of my favorite resources is the CFPB.
This was one area where you may disregard purchases as individually they seem relatively small but, when added together can make a major impact, and one where I went overboard after I started working. At first, it felt great to not have to worry about money for eating out, but there was no limit to how much I could spend.
Like many of my peers I would often buy coffee and lunch and, after a long day at work was not interested in cooking so I would also pick something up on my way home. Combine that with happy hours, brunches, and heading to the bar on the weekends, I was spending almost 10% of my take-home pay here alone.
It wasn’t just impacting my wallet, but also my weight.
I laid out the math of how much my frequent coffee, lunch, and dinner expenses were along with semi-regular happy hours and brunches. Looking at the costs weekly, monthly, and yearly the numbers were eye-opening. Enough so that I knew I needed to make a behavioral change.
After I started budgeting a set amount for eating out each month I learned to cook more and take my lunch to work. Still, I was able to enjoy the occasional dinner out, brunches, and more. This is a practice I continue to follow and it has allowed me to improve my health, save more money, and spend quality time in the kitchen with my family.
It’s easy to fall into this lifestyle creep because many of your friends and peers are not considering the financial impact of their daily decisions. You can still have fun and eat out, but consider having a set limit each month.
What would I do differently? I wish I would have realized sooner how much I was spending on eating out and drinking. Without tracking it didn’t seem like much, but after budgeting and wanting to pay my student loans off quicker I had to make some changes.
By making this behavioral change, I have seen a positive change in my spending habits for all expenses, not just food. Once you start thinking about your finances and their long-term potential, there is no turning back. I guarantee you, you'll be happy you did.
These were the four money mistakes I made in my first year after graduating from college. Thankfully I learned proper money management and tackled these challenges, but ultimately they all had big impacts on my financial future.
Had I cut my housing expenses earlier, slowed down student loan repayment, and not bought the expensive car, my net worth today would be $100,000 higher and I would still be debt-free. Both small and large money decisions can have compounding effects that will either make your life better or worse.
So, no matter where you are in this journey, whether a new grad or a couple of years out, still searching for a role or beginning a new one I’m happy to help you navigate the world of personal finance. This is a stressful but exciting time for you, and you don’t have to go it alone.
I know it can be hard to know where to start or what to do first so I am here to help you. As a financial coach, I have helped hundreds of people get out of debt, save more, and transform their relationship with money. I will meet with you to create a plan to achieve your financial goals and provide you with personalized coaching tailored to your specific needs. You’ll leave feeling confident about your financial future!
If you’re interested please schedule a free consult on my website and we can see if we are a good fit for each other. You can also email me with any questions at info@organizedbyjosh.com.
