Without savings, I’d use the Warren Buffett technique in 2022 to build financial security

Our writer explains how he would try to build financial security over time even if he started without savings, using lessons from Warren Buffett.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Warren Buffett at a Berkshire Hathaway AGM

Image source: The Motley Fool

A lot of people do not have savings. It is easy to sit around and worry that, without savings, one will never achieve a sense of financial security. I think that by applying some lessons from investor Warren Buffett, I could build my own financial security even starting without savings. Here is how.

Focus on long-term wealth creation

Future financial security could come from me building a portfolio of shares in high-quality companies. But to do that, I need to invest money. Even without savings, this is completely possible. But I will need to develop financial discipline. I would start regularly putting aside money I could use to build my share portfolio.

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I would need to do this within my means. I am unable to invest money I cannot spare. But at the same time, if I am serious about building financial security, I may want to make some sacrifices in my everyday spending to help me improve the chance of hitting my goal. The more money I can accumulate, the more likely I will feel that I can achieve financial security in future.

Warren Buffett on buying shares

But putting aside money regularly is only the first step. It helps me overcome the problem of having no savings. But on its own it will not necessarily give me the level of financial security I would like.

Warren Buffett has spent his life getting rich, largely by buying shares in high-quality companies. He does not invest in mysterious companies someone told him had amazing prospects. He is not interested in buying shares in companies with new business models he does not understand.

Instead, Buffett invests in companies whose business models he understands, like Coca-Cola and American Express. He focusses on whether they have a competitive advantage that they can use to support future profitability. For example, Coke has a unique product formula and Amex has millions of customers who value its prestigious brand. Finally, he considers the share price. Buffett is not exactly a bargain hunter. But he recognises that overpaying will reduce his long-term return from shares even if the companies are strong ones.

How I would use the Buffett technique

By starting to put aside money regularly, I could apply Buffett’s approach on a smaller scale. Like Buffett, I would not rush to buy shares. Instead, I would spend time researching to identify companies with long-term growth prospects I found attractive.

Then, I would consider their share prices. Like Buffett, I might not buy them for years. But when I thought I could buy shares in these great companies at a good price, I would add some to my portfolio. Just like Buffett, I would aim to reduce my risk by diversifying across a variety of companies and business areas.

Then I would let time work its magic. Instead of jumping in and out of shares like a trader, I would hold my shares for as long as I continued to like the company’s future prospects. Hopefully, that would help me build more financial security as the years went on.

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Christopher Ruane has no position in any of the shares mentioned. American Express is an advertising partner of The Ascent, a Motley Fool company. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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