4 Common Financial Mistakes New Grads Make
UpdatedMar 28, 2025
- Using a budget could make it harder to overspend and easier to save.
- It’s a great idea to split windfalls between savings and spending.
- Establish a saving habit, and be mindful about debt.
Table of Contents
If you’re a new grad—congratulations! You officially know some things, and you’re ready for the next chapter in your life. That next chapter will be easier if you know how to manage your money, but not everyone gets to learn about finances growing up.
You’re in a great position to establish smart money habits now. To get started, keep these common financial mistakes in mind (and try to avoid them).
Financial Mistake #1: Failing to Budget
Budgeting—we all know we should do it, but only 32% of adults actually make a household budget, according to polling company Gallup.
Why don’t more people budget? Some people feel like they can’t find the time. Some simply didn’t get to learn how. And others just don’t get excited about the idea of financial planning.
But a budget doesn’t take a long time or require lots of know-how. You can often make a budget over an afternoon or a weekend, and once you have yours ready, you’ll probably feel better about your finances. A well-planned budget makes sure that you have more of your money available for the things that matter most to you by cutting back on things that matter less.
How to fix it: Choose a budgeting method you like
There are many ways to budget, and one method is bound to resonate with you. Here are common tools:
Apps that you sync with your bank accounts
Spreadsheets (there are many examples online that you can copy)
Envelopes
Notebooks
Online calculators
So what’s the right tool for you? The one you’ll use!
You can always make a change later if you want to try something new, or if your finances become more complicated. Right now, the most important thing is establishing a healthy habit for life.
Financial Mistake #2: Spending All Your Extra Money
If your first thought when you come into extra money is a party or a shopping spree, take a second to reconsider. You could spend your entire windfall on fun and impulse purchases, but extra money is also a great opportunity to set yourself up for long-term success.
Think of it this way. If your car breaks down or you have a family emergency, you’ll be happy to have some extra money in your emergency fund to cover it.
To be clear, you don’t need to put all your money toward financial goals and have no fun whatsoever. This is one of those situations where you can often have the best of both worlds.
How to fix it: Divide extra money between financial goals and fun
Decide on a system for how you’ll split up extra money you get on top of your regular income, such as bonuses at work, cash from side hustles, or gifts from family. For example, you could use half for fun and the other half for a financial goal (getting rid of debt, adding to your savings, etc.). Or, you could use 25% of extra money for fun and 75% for financial goals.
The system and the ratio are up to you. What’s important is that you use a portion of your extra money in ways that can make your life richer in the future.
Financial Mistake #3: Not Saving Consistently
Lots of people have every intention of saving money once they get to the end of the month and see how much is left over. But when that time rolls around, it could be that all of your paycheck has already been spent.
Saving is one of the most important parts of money management. When you have money in the bank, you’re better prepared for emergencies and bigger expenses. Want to buy a house one day? You’ll probably need savings. Hoping to start a business? Having money in the bank for funding could help your business succeed. If you build a savings habit now, your future self will have more security and be better able to jump on opportunities.
How to fix it: Save first and make it a habit
First things first—if you don’t have a savings account, open one. A checking account works well for moving money around, but a savings account is the safest place to put your savings, hence the name.
Choose an amount you can afford to save, and don’t worry if it isn’t much yet. If you can save $5 a week, start there! The first step is to create a good habit. You can increase the amount you save as your income increases, or if you trim your spending.
Next, transfer that amount from your checking account to your savings account each time you get a paycheck. This method is called “paying yourself first.” You put money in your savings before you spend it on anything else. That way, you’re less likely to miss out on savings because all the money’s gone. If you want to make it even easier, set up an automatic transfer from your checking to your savings.
Financial Mistake #4: Getting Into Trouble With Debt
Debt isn’t always a bad thing. For example, you may take on debt to buy a home or a car. Homes and cars are both big-ticket items, so a loan can help you make the purchase. Mortgages and auto loans also tend to have lower interest rates than other types of debt, such as credit card debt.
High-interest debt, on the other hand, makes life more difficult. The average credit card interest rate is over 20%, which can add quite a bit to your balance every month.
The amount of debt also matters. A mortgage can be a safe way to buy a home if you can afford the payments.
Related: 5 home-buying mistakes
How to fix it: Be careful about borrowing money
Before you go into debt, think about whether it’s a wise decision. If you want to buy something you can’t afford or don’t need, you might be better off saving up for it instead of borrowing money. Only go into debt when necessary. For instance, mortgage debt could benefit you because you can buy a home and pay it off over time.
If you’re currently in debt, figure out a plan to repay what you owe. Consider paying extra each month to pay off your debt more quickly and save money on interest charges. If you’re struggling to make your payments, try a debt relief program that could help you get control of your financial situation.
The Future
Once you’ve headed off these common financial mistakes, keep up the good work. Budget for long-term goals like retirement (and if you can, take advantage of employer 401(k) accounts and matching benefits). And budget for shorter-term goals like vacations, weddings, and buying a home.
Talk to a financial advisor about the best kind of investment for each goal. Brokerages like Schwab, Fidelity, and others offer free or low-cost robo-investing accounts that may be a help in getting your money into the right accounts for your situation and goals.
Life will probably get more complicated in the years following graduation. But by establishing some basic good habits today, you’ll be on track to stay on top of your money and enjoy a better financial future.
Debt relief by the numbers
We looked at a sample of data from Freedom Debt Relief of people seeking debt relief during November 2024. This data reveals the diversity of individuals seeking help and provides insights into some of their key characteristics.
Credit utilization and debt relief
How are people using their credit before seeking help? Credit utilization measures how much of a credit line is being used. For example, if you have a credit line of $10,000 and your balance is $3,000, that is a credit utilization of 30%. High credit utilization often signals financial stress. We have looked at people who are seeking debt relief and their credit utilization. (Low credit utilization is 30% or less, medium is between 31% and 50%, high is between 51% and 75%, very high is between 76% to 100%, and over-utilized over 100%). In November 2024, people seeking debt relief had an average of 79% credit utilization.
Here are some interesting numbers:
| Credit utilization bucket | Percent of debt relief seekers |
|---|---|
| Over utilized | 30% |
| Very high | 32% |
| High | 19% |
| Medium | 10% |
| Low | 9% |
The statistics refer to people who had a credit card balance greater than $0.
You don't have to have high credit utilization to look for a debt relief solution. There are a number of solutions for people, whether they have maxed out their credit cards or still have a significant part available.
Collection accounts balances – average debt by selected states.
Collection debt is one example of consumers struggling to pay their bills. According to 2023, data from the Urban Institute, 26% of people had a debt in collection.
In November 2024, 30% of debt relief seekers had a collection balance. The average amount of open collection account debt was $3,203.
Here is a quick look at the top five states by average collection debt balance.
| State | % with collection balance | Avg. collection balance |
|---|---|---|
| District of Columbia | 23 | $4,899 |
| Montana | 24 | $4,481 |
| Kansas | 32 | $4,468 |
| Nevada | 32 | $4,328 |
| Idaho | 27 | $4,305 |
The statistics are based on all debt relief seekers with a collection account balance over $0.
If you’re facing similar challenges, remember you’re not alone. Seeking help is a good first step to managing your debt.
Support for a Brighter Future
No matter your age, FICO score, or debt level, seeking debt relief can provide the support you need. Take control of your financial future by taking the first step today.
Show source
Is it normal to make financial mistakes?
Yes. It’s normal to make the occasional financial mistake. Most of us have made money moves that we later regretted. The keys are to avoid mistakes when you can, learn from the ones you do make, and learn from other people’s financial mistakes so you don’t make the same ones.
How do I know if I’m doing well financially?
Here are some signs that you’re doing well financially:
You have and follow a budget.
You spend less than you earn.
You save and invest every month.
You don’t have credit card debt or, if you do, you have a plan to pay it off.
You have an emergency fund.
At what age should you be financially stable?
Ideally, you’ll feel financially stable while you’re in your 20s, but everyone progresses differently. What matters most is that you’re making progress with your finances. Make a budget and save money every month, and financial stability will come.
