How to Start from Zero Financially

One of the interesting things about running a blog is looking at what readers use for search engine terms to find your site. The other day I was looking at my stats and came across this search term question: How to start from zero financially? Great question! Considering the name of my blog I can see how they made it to my site and I thought it would make for a good post.

So how should you start out if you’re starting from zero, as one reader is asking? Of course this all depends on what the person’s goals are but let’s say for the sake of this post lets say they are looking to save for retirement. This a pretty common savings goal for most people.

Since they are asking about starting from zero, I’m assuming they have no debt. If they do, eliminating short-term debt like credit cards and car loans should become the priority before looking into investing. I’m really not an expert in getting out of debt since my only experience with it was a very short-term car loan so I don’t want to get into that too much here.

The first step I would suggest to someone starting out is to educate themselves on finances and investing. If you are in debt, spending the time while you are paying off debt can be a great time to learn about investing to better prepare yourself. I personally spent about a year reading everything I could on investing before I bought my first stock. And you don’t have to go out and buy a bunch of expensive books either. I used to borrow ones from the local library. Rich Dad, Poor Dad is probably one of the best out there if you’re looking for an introduction to personal finance and investing. If you’re the kind of person whose only financial education has come from the limited curriculum of our public education system, this book can really change the way you think about finances. I first read it when I was a teenager and have since reread it several times. After that you can get into more investing focused books such as those by Peter Lynch and Jim Cramer.

While you are educating yourself, the next logical step would be optimizing your cash flow and increasing your savings rate. Most of the mainstream financial advice out there is to put 10% away from your retirement. That’s bullshit and just teaches people to be irresponsible with their money. Granted 10% is better than nothing, but why should you limit yourself to just what the “experts” recommend? On the flip side you don’t have to go crazy and save upwards of 60-70% like us early retirement crazies. 😉 You just have to find that right balance that will still allow you to meet your goals.

Once you got your finances under control, the next step would be building up an emergency fund first, before doing any investing. You always want to have some money stashed away to use to fall back on in hard times so you don’t have to dip into your retirement savings. Before investing you also have to decide what type of investment account to use. Some of the common options are a Traditional IRA, Roth IRA, and 401k. I detailed the differences between these accounts and the types that I use here in a recent post.

Once that’s done comes the fun part, actually investing to work on accomplishing those goals. By this point, through your reading hopefully you’ve picked an investment strategy you’re comfortable with. I’d recommend actually writing down your investment plan so it can help you stay on track. While I personally prefer to invest in dividend growth stocks you should choose a strategy that you both understand and will remain committed to over the long-term. While choosing a strategy of trading growth stocks sounds good in theory, will you be tempted to sell low the next time we get a bear market and the value of those high-flyers plummet? If so, you may want to look into a more conservative strategy like dividend growth stocks or index funds where the focus is on the long-term and building wealth slowly.

Well that’s about it, in a nutshell. 🙂 For some other great resources in helping start from zero financially, check out the great advice and financial journeys from fellow bloggers over at my Blog Roll, this article I contributed to on investing advice for beginners, and this recent post on where to research stocks. Good luck!

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