Graduating from college and entering the "real world" can inflict total chaos on your life: Suddenly, you have to figure out how to feed yourself without the assistance of a 24-hour dining hall. Your closest friends, who used to be just a dorm room away, are now scattered across the country. Your parents are less willing to send checks upon request. On top of that, you have to start paying rent, find and keep a job and somehow convince yourself to start saving money for retirement, which is about four decades away.
It's overwhelming, but not insurmountable. These seven mistakes and their solutions are designed to help college graduates bypass common hiccups and take control of their financial lives:
1. Taking on too much debt – or not enough. Too much debt can weigh down recent grads, forcing them to spend more money on interest and fees than on fun activities and other goals. Avoiding loans altogether, however, can hurt college grads. Sometimes, student loans for graduate school or a mortgage are good investments. Being responsible for credit accounts also allows 20-somethings to build their credit history, which is required if they want to take out a mortgage, auto loan or other type of loan in the future.
The solution: Build your credit history slowly and steadily by opening up accounts in your own name and paying them off on time.
2. Becoming victim to rapid lifestyle inflation. You're a recent college grad, so that means you probably need a new car, new apartment, new sofa and a new … Wait a minute. Not only do you not need all those things, you probably won't appreciate them much, either. A little theory called the "hedonic treadmill" explains why. We adapt all too quickly to improvements in our lifestyle. That 60-inch television you drooled over at Best Buy will soon start blending in with the rest of your furniture, along with your top-of-the-line coffee maker and pillow-top mattress.
[Read: How to Save One-Third of Your Income.]
The solution: Instead of using your first paycheck to make your new digs look like a sitcom set, spread out your purchases over time. Maybe you need a bed right away, but that embroidered duvet cover from Pottery Barn can wait.
3. Falling into bad money habits. Biweekly $20 happy hours, daily $15 lunches and nightly take-out are just a few of the bad habits that eat into new grads' bank accounts. While the occasional lapse isn't a problem, repeatedly wasting money on a weekly basis for years will cost you, big time.
The solution: Learn to cook by enlisting the help of friends, family members or your favorite celebrity chef (via the Food Network). Cooking your meals can save you hundreds, if not thousands, of dollars a year and turn your home into a popular destination for friends. It's a skill that lasts a lifetime.
4. Waiting to save and invest. Sure, you don't feel like you have "extra" money yet, and you're still getting used to seeing your name on a paycheck. But that makes it the perfect time to start saving at least one-quarter of your income for future goals, including retirement. The first priority is to establish an emergency savings account with at least three months' worth of expenses that can get you through any unexpected bumps, from unemployment to a car accident. Then, start saving for retirement. If your employer offers any type of 401(k) matching program, take advantage of it – passing it up is like saying "no" to a pay increase. Then open an after-tax savings account for your other goals, from traveling to homeownership.
The solution: If saving any money seems daunting, start by funneling a modest 2 percent of your income into a high-yield savings account or money market fund. Then, slowly raise that percentage. Once you have your three-month emergency fund stored away, consider investing a portion of your longer-term savings in low-fee index funds and other, more aggressive investment vehicles.
[Read: 6 Best Money Tips for Young People.]
5. Failing to negotiate for a higher salary. Even in this economy, employers expect some haggling over salary and benefits. In fact, doing so is a sign of professionalism that shows you, a recent college grad, understands how the working world works. A simple request after expressing enthusiasm and appreciation for the job offer can eventually lead to hundreds of thousands of dollars more in lifetime earnings. Linda Babcock, an economics professor at Carnegie Mellon University, calculates that not negotiating your first job offer can result in a loss of up to $1.5 million in lifetime earnings.