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.
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.