Seven Reasons New College Graduates Struggle With Money

It’s that time of the year when millions of people graduate college and accomplish a very important goal that hopefully positively impacts their life for many decades to come. But with this accomplishment comes the stress and uncertainty of a new post-college lifestyle that involves juggling the beginning of a career, adjusting to new daily schedules, and, on top of all that, the challenge of managing your money to try to get ahead financially.

As a 26-year-old, I’ve recently lived through all this for the past four years since graduating college myself, and in this blog, I wanted to go over these seven reasons why I think new college grads can struggle with money. I wanted to talk about these things because I remember feeling so overwhelmed with all the personal finance information out there about saving, investing, and budgeting, and I was a finance major. But luckily, I was and still am really passionate about reading and learning about this stuff. So over the past four years, I’ve been optimizing my own finances, and I think that the seven reasons I’ll discuss in this blog can be beneficial to any new graduates, as well as any other young people out there. 

1. They focus on the small financial wins instead of the big financial wins

Let’s just get right into this with the first reason why new grads can struggle with money. And let me explain this because it is important, but that’s because they focus on the small financial wins instead of the big financial wins. There will be temptations to spend your money everywhere you look, so there are a lot of local coffee shops, food delivery services, new clothes that you might want, tickets to a game or a show, and so on.

And for new college grads that want to prioritize their finances, I’ve found that these little spending temptations are often what we target first when we’re trying to cut back on our spending. Now don’t get me wrong; any saving that you do is definitely not a bad thing. If you don’t spend $5 on a cup of coffee or if you don’t buy that shirt that’s on sale, those things can be good for your wallet.

But those are what we like to call small financial wins, and the problem here is that, over time, they’re just not going to move the needle that much for building wealth. Small financial wins can be anything like couponing or moving your money around every few months from bank to bank just to get a slightly higher APY.

I mean, yeah, you might get paid more from that new bank account, but consider that if your bank account balance was $10,000, going from an APY of 0.5% to 1% is only going to get you from $50 in interest to $100 in interest over the course of one year. That’s only about an extra $4.17 per month, so that’s what I mean by small financial wins.

Instead, you need to be focusing on the bigger ones, such as paying down high-interest debt. So if you have, for example, any credit card debt on which you’re paying maybe 16% interest, paying that down is going to be an immediate guaranteed 16% return. You should create a plan for paying back any student loans that you might have, whether that means prioritizing high-interest loans or attempting to become completely debt-free. You can do some freelance work or have some other side hustle in your spare time to try to increase your income, and you can try to save on your three largest expenses, which for many people are going to be housing, transportation, and food.

There are a lot of bigger financial wins like these that you can focus on, which we’re going to talk about throughout this blog, but like I said, saving some money with those smaller wins is not a bad thing either. It’s just a very short-term mindset to have if that’s all you’re doing. I’ve learned that it’s much better for me to focus my time and energy on these much bigger and more meaningful financial wins, even if they do take a bit more time to accomplish or see some progress. 

2. They don’t value their time enough

And that leads me to the second reason why new college grads can struggle with money, which is that they don’t value their time enough, and I’ll explain what I mean by that. So for the first year or so of working my first full-time job after graduating from Penn State back in 2018, I would just get into this routine of leaving the office around five, getting home around six, eating some dinner, watching some Netflix, and then going to the gym a few days a week. 

And then on the weekends, I’d sleep in a little bit, relax during the day, maybe watch some sports on TV, and overall just try to decompress as I got ready for the work week to begin again on Monday. But eventually, I realized that there was so much more that I could be doing with my time and the other 72 hours in a week outside of the 40 hours that I was working and the 56 hours that I was sleeping. After trying different side hustles, I eventually started blogging back in January 2021, and I’ve grown it and run it like a business ever since.

And honestly, I can say that doing that has been one of the most rewarding things that I’ve ever done. I realized my problem before was that I wasn’t valuing my time off from work like I was while I was at work. So what I did was set a dollar value in my mind for what I thought my spare time was worth. I knew what my salary was at my 9–5 job as an hourly rate.

So I told myself that any spare time I spent working on a side hustle would be worth twice as much as that. Even when I wasn’t making any money at all like I was for the first 6 or 7 months of this website. And over time, as my income has increased from running websites, I’ve also tried to increase the hourly rate in my mind as well as factor in potential future growth.

Now anytime I’m just sitting around doing something unproductive, I feel like for every hour that passes I’m just wasting money at this higher hourly rate. I’ll still watch Netflix and relax when I need to because I do try to be self-aware and I know that I can’t be productive 24-7. But valuing my time at this high rate has sort of led to this self-fulfilling prophecy where I’ve now increased my income, and I can now use that additional income to reinvest in the business or to invest in other things, to pay down debt, or to use it for whatever else I want to.

So, for anyone reading this, value your time and be deliberate about how you spend it; don’t spend all of your time binge-watching Netflix shows or playing video games for hours on end. If you can set aside some time to potentially start a side hustle or pick up another part-time job, then definitely try to do that if you’re motivated to do so since that additional income could really help to improve some of your money struggles. And hopefully, by valuing this time, you’ll want to do more of the important things in life, such as spending some of it with friends, family, and loved ones, or simply traveling and seeing new places. 

3. They don’t fully take advantage of investing for retirement

And time actually rolls perfectly into the third reason why new college grads can struggle with money, which is that they don’t fully take advantage of investing for retirement while they are young. As I just talked about, it’s important to value time as a new college graduate. But it’s also really important to take advantage of the time when it comes to investing; that way, you can experience the full power of compound interest. Basically, when you invest consistently and then reinvest those earnings, those initial investments and earnings are going to generate more earnings, which is going to lead to exponential growth in your wealth.

Now the difference between starting to invest at age 22—when many people graduate from college in the US—versus age 32 is actually pretty crazy. If you just started investing $100 per month at age 22 into a plain index fund for the next 40 years until you were age 62, assuming a 7% average annual return, your portfolio would grow to over $239,000.

However, if you waited just 10 years later, until the age of 32, to begin investing $100 per month and continued to invest for the next 30 years until the age of 62, you would only have $113,000, less than half the value of if you began investing 10 years earlier. And this is where retirement accounts come into play.

Many new college grads will be starting jobs after graduation, and many of their employers will offer certain accounts that can help them invest for retirement over the next 40 years while also saving money on taxes. First, there are 401(k) accounts, either a regular 401(k) that allows you to invest pre-tax dollars or a Roth 401(k) that allows you to invest post-tax dollars.

You can look into both of these options to decide which one is best for you if they’re available at your company, but with either one of these, I think you should look to take advantage of any company matching. This is where your employer will match you dollar for dollar up to a certain percentage of your salary that you choose to contribute to a 401k account, so maybe it’ll match you dollar for dollar on the first 4% or 5% of your salary.

It all varies from company to company. That’s a 100% return right there, so it’s definitely a good idea to try to get that full company match if possible. And even if you are focusing on paying down any student loans, taking advantage of a 401(k) company match, I think, is still a good idea for most new college grads because that’s just free money that you’re leaving on the table otherwise.

There are also other long-term tax-advantaged accounts like HSAs and Roth IRAs that I highly recommend you look into as well. Now I do realize that it can be tough for some people to save for retirement and to contribute to these accounts, depending on how much they’re making and what their expenses are.

But if you can, try to live below your means by as much as possible. I know that it might sound very boring to start saving for retirement right now with that being so far off in the future, but trust me, your future self will thank you for doing so because you’ll be taking advantage of that compound growth opportunity while time is still on your side.

4. They don’t try to develop at least some interest in learning about basic personal finance

The fourth reason why many new college graduates appear to struggle with money, and this should be self-explanatory, is that many of them do not try to develop at least some interest in learning about basic personal finance. I think that I’m really lucky because I’ve always had this interest in math and numbers, so as I started growing up, I kind of gravitated towards learning more about things related to money because it just made sense to me.

And that’s not meant to brag at all, but for a lot of people, personal finance can seem very intimidating with trying to understand all these different terms, knowing where to put your money, how to use a credit card, and all these other things like that. However, just because it might seem intimidating does not mean that you should shy away from it and not try to learn some of the basics.

Managing your money only has to be as difficult as you make it, and the truth is, there are a lot of ways to automate things and create systems that help you to simplify the wealth-building process. Me, I try to continue learning as much as I can because I enjoy it, but what I would When I was commuting to work, I would listen to different audiobooks and podcasts on the train, I would read different books and articles about money, and I would even watch different personal finance videos to just try to learn more as entertainment because I found those topics so interesting.

I slowly began to notice that the more comfortable I was with personal finance, the less stress I seemed to have in other areas of my life. And I think that for many of us, money obviously tends to be one of the leading causes of stress, especially when we’re young and trying to figure stuff out. Just aim to learn maybe one new thing a day because that one thing that you learn or that one idea that you develop could help you save or make hundreds of thousands of dollars over the long term. Some information out there is going to be better than other information, but after a while, you should be able to form your own opinions about what works for you and your situation, and that feels really good when you develop this comfort with money.

5. Not building credit

Moving on to the fifth reason for new grad struggles—and this is something that I talk a lot about here on my website—that is not building credit. Whether you like it or not, having good credit is something that is very important here in the US, despite what some people out there might think. In my mind, it’s better to learn and then practice smart financial habits with credit and be prepared with a good credit score rather than just avoid credit altogether.

Now the best way by far to build credit, especially when you’re young, is to responsibly use credit cards. You want to start with something like a secured, no annual fee credit card, and then eventually move up to an unsecured card, and then just use those cards to make small purchases each month.

Then pay off any statement balances on time and in full each and every month to build up a good payment history, which just happens to be the highest impact factor on your credit score since it accounts for about 35% of your score. Credit utilization is low as well, and credit utilization is simply the balance on your card divided by the credit limit.

You want to keep that utilization in the low single-digit range if you can on each card and across all cards combined. But by doing all those things and treating your credit card like cash, and only using the credit card if you already have the cash set aside to pay off that balance on time and in full each month, you’ll start to see your credit score increase pretty quickly. There are a few different benefits to having a good credit score that’s somewhere above 700 or so.

First, if you’re applying to rent an apartment, your potential landlord is likely going to check your credit, and if it’s bad, they might just give the apartment to someone else instead. Or they may tell you that in order to get the apartment, you must do something else, such as pay some extra rent in advance.

You might also want to purchase a house or a car someday, and if your credit score isn’t good, then you’re going to be offered a higher interest rate for that loan or that mortgage. And with that, you could end up paying tens of thousands of dollars more in interest over the life of that loan. So the simple solution is to not be afraid of credit and credit cards like many people are, but you do have to be very careful with them.

As I previously stated, if you treat these credit cards like cash and pay them off in full each month, you will avoid overspending and build credit responsibly. And at the same time, if you’re using credit cards the right way, then those credit cards can actually pay you in the form of cashback and points for travel, which is exactly how I’ve been able to use credit cards and credit card points to travel almost completely for free over the last three years.

6. Their own money habits and mindsets

On to reason number six—why new college grads can struggle with money—and that is going to be because of their own money habits and mindsets. So this is something that I’ve always found very interesting. We’ve all lived different lives, right? Some of us might have grown up in households that are wealthy and have no bad debt, while others might have grown up in households that were living paycheck to paycheck and had to lean on credit cards and their high-interest rates in order to put food on the table.

So, when we think about it, we’ve all grown up with these different ideas about how money works. We could be looking at credit cards as being bad, or we could look at them as being good. We might be afraid to invest because maybe we saw our parents lose money by investing in individual stocks, but maybe others saw their parents successfully invest and grow their wealth.

The point is that when it comes to money, we all have our own views and experiences around it, which is why I think there’s disagreement on certain personal finance topics. To say that one person is 100% wrong and another person is 100% right is something that I’ll never do because I’m not truly able to process all the information that each one of us is working with based on our own unique histories.

So I’m bringing this up as a reason why new college grads might struggle with money because they might hear some new advice or they might be following some old assumptions, but that doesn’t always factor in everything about their situation. We all have to try to form our own opinions about money, which goes back to education and learning.

And I’m talking about learning from both sides of an argument until you can fully understand why each side thinks the way they do. For example, I love credit cards, and I try to help others use them the right way so they can get all the benefits without the downsides. But I also love watching and reading the different content that Dave Ramsey puts out there as a personal finance expert, even though he famously hates credit cards and completely advises against anyone using them. I see where his typical viewers are coming from when they struggle with bad debt. So for those people, I agree with what Dave is teaching: stay away from credit cards because the cost is going to be greater than the benefit.

But I also like to form my own opinions, which I share here on this website because I hope that my content can be useful for some people out there who are interested in seeing where I’m coming from as a 26-year-old guy who’s benefited a lot from credit cards over the years. So as a new college graduate, just recognize that your current thoughts and feelings towards different personal finance topics are valid. But I just challenge you to be curious about all of these topics and to learn from both sides of an argument. 

7. Not budgeting

And finally, for the seventh reason why many new college grads can struggle with money, this is going to be another very simple one, and that is not budgeting. When I graduated and got my first paycheck, I remember thinking that it would be a good idea to start budgeting in some way. That way, I could hopefully keep my expenses as far below my income as possible. So I turned to the internet and started to download different budgeting templates, but each one of these seemed a little bit too complicated and too overcrowded.

So over the years, I just started developing my own simple budget, which I still use to this day. Now I think that a budget should not be restrictive. It should really just be a tool that makes you more aware of where your money is coming from and where it’s going.

I kind of like to relate this back to food and something that I used to do when I was getting serious about working out and nutrition, which was to track my calories and the different macronutrients that I was consuming, like protein, carbs, and fats. Now, when I began tracking these things, I just went about my normal day of eating because I wanted to see what those macronutrients and what those calories would be like at the end of the day, and I was very, very surprised at the results.

I was not eating enough protein. I was consuming far too much fat, and far too much bad fat. So I decided to start making some changes to my diet with the food that I was eating to help me better reach my goals and the gym, and that made a huge difference. It was really all about becoming more self-aware of what I was eating by tracking and essentially budgeting the food, which allowed me to see that I wasn’t eating as wisely as I should have been.

But as I added more whole foods and took away some processed foods, basically just getting everything much more in balance, eventually I was able to stop tracking my diet so diligently because now I have these new eating habits and am much more purposeful with my food. And I think the same thing applies to what I’ve done with my money.

When I first started budgeting and tracking what I spent my money on, I was astounded at how much money I was wasting on useless items. So I tried to become more self-aware and more purposeful with how I was spending that money. Eventually, after budgeting for just a few months, I started to notice some new habits here as well.

So I was saving more money. I was investing some of the money that I was saving at a much better rate. And overall, I was just being much more purposeful with the income that I was earning. Now I still like to budget, and I like to see exactly where every single dollar is going. Maybe I’m a little bit weird, so you do not have to be that exact.

But again, budgeting is much more about self-awareness. You’ll want to spend and save your money with a purpose. And obviously, you want to try to avoid overspending as well, because that is a very easy trap to fall into if you don’t have a budget in place. So as a new college graduate, try to start budgeting in some way to get a better feel for how you’re going to manage your money until you start to notice that you’re developing these better habits, which are going to benefit you a lot in the long term. But hopefully talking about some of these topics has been useful for anyone who’s read this blog.