Without Savings, I’d Use Warren Buffett’s 5 Tips for Building Wealth

close-up photo of investor Warren Buffett

Written by Adam Othman at The Motley Fool Canada

Wealth creation takes time, patience and a disciplined approach to investing. But it also takes capital, that is to say the financial seed that makes the tree of wealth sprout. For people who want to build wealth but don’t have savings to start with, some advice from Warren Buffett can be extremely helpful.

Tip #1

Warren Buffett is a big proponent of education and self-improvement and encourages people to invest in themselves before anything else. Indeed, for most people, the path to wealth is not to be a professional investor, but to be a successful investing professional.

So being good at your profession, learning how to move up the ladder, and diversifying your skills to produce side streams of income can be key to building wealth.

Tip #2

Living modestly is not just advice from warren buffet — his life is a practical example. He has a modest lifestyle (for a man of his wealth), which anyone aiming to get rich should try to emulate. Living within your means and focusing on good health, food and education instead of some expensive version of these should be the way to go.

Tip #3

Pay off your debt as soon as possible. The interest you pay on your credit card debt is essentially what you spend, that is, an unnecessary increase in your spending. The higher your expenses, the less likely you are to save.

Tip #4

It is important to be patient. When you start saving and investing, you need to realize that you may not see great returns overnight. And since Warren Buffett recommends investing in good companies and sticking with them as long as they remain good companies, patience is a virtue that has rewarded him pretty well.

An example would be Empire Company (TSX:EMP.A), the conglomerate that owns Sobeys. If you had invested in the company in 2000, you would have increased your capital by more than 540% in 15 years. And if you had sold the business anytime during the fall that spanned 2015 to 2017, you would have diminished those returns.

However, the company recovered and eventually surpassed its 2015 peak. Returns between 2000 and 2022 (at its peak) would have been around 800%. So, patience and investing in businesses that you can stick with for decades is important for building wealth over time.

Tip #5

Investing in what you understand and know is the smart approach. It saves you from following trends that could cause you to lose money and helps you analyze your investments on a much deeper level (for their fundamental strengths). So, if you know the banking industry well, investing in a banking stocks As Royal Bank of Canada (TSX: RY) might be a smart move.

The largest bank in Canada and the largest publicly traded company in the country is an easy choice, even for investors who don’t know the banking industry intimately. But if you do, you might be able to identify its strengths from its global reach, how it manages debt, its leverage, and more. You can also identify potential weaknesses that others might miss.

Insane takeaways

Start saving and investing as soon as possible. When you own good businesses for the long term, time can be your best ally in building your wealth. And smaller sums over a long period of time could yield better returns than a relatively larger sum held for just a few years.

The post office Without Savings, I’d Use Warren Buffett’s 5 Tips for Building Wealth appeared first on Motley Fool Canada.

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Dumb Contributor Adam Othman has no position in the stocks mentioned. The Motley Fool has no position in the stocks mentioned. The Motley Fool has a disclosure policy.