With nothing in my savings account, I'd use Warren Buffett's golden rule to build wealth

A young well-dressed couple at a luxury resort celebrate successful life choices.

Given the cost of living crisis, it's probable that many readers don't have as much in their savings accounts as they would like.

But don't worry if that's the case because history shows that it's possible to build a meaningful nest egg by following in the footsteps of Warren Buffett. Even when starting from zero.

Especially if you follow the Oracle of Omaha's "golden rule" of investing.

What is Warren Buffett's golden rule?

The legendary investor's golden rule is very simple. The Berkshire Hathaway (NYSE: BRK.B) leader famously remarked:

Rule No. 1: Never lose money.

And to highlight just how important this rule is for investing, Buffett then adds:

Rule No. 2: Never forget Rule No. 1.

You might now be thinking that this golden rule isn't very helpful because it's so obvious and simple. But there's actually more to it that first meets the eye.

That's because when investing in ASX shares, it can be very tempting to chase big gains by investing in companies that people on message boards or Reddit (NYSE: RDDT) groups are touting as the next big thing and a way to get rich quickly.

Time and time again investors get sucked into these types of investments. And time and time again they will destroy significant wealth buying these highly speculative ASX shares.

You only need to look at companies like Brainchip Holdings Ltd (ASX: BRN) and Weebit Nano Ltd (ASX: WBT) to see this. Both of these semiconductor companies are attempting to compete with giants such as US$3 trillion Nvidia (NASDAQ: NVDA) in the chip market with comparatively minuscule budgets.

And so far, based on their insignificant revenue generation, they look unlikely to deliver on the grandiose goals that stock spruikers are saying is possible.

This has led to their shares losing approximately 50% and 65% of their value, respectively, over the last 12 months (and significantly more from their highs).

Why it's important not to lose money

If you lose money, you have an uphill battle to get even again and then to compound your way to significant wealth.

For example, let's imagine you make a single $20,000 investment into a balance portfolio of high quality ASX shares. If you can generate an average annual return of 10% for the next 30 years, you would end up with a portfolio valued at approximately $350,000.

Now imagine that you start with a $20,000 investment but lose 65% during your first year. At the beginning of year two you will have $7,000. If you now compound this amount for 29 years at 10% per annum, you would end up with an investment portfolio valued at approximately $111,000.

This means that the one gamble you took on a speculative ASX share in the first year has cost you $239,000.

How to grow your wealth

Instead of putting all your money on a speculative ASX share, investors might want to consider putting what they can into a balanced portfolio of high quality shares that have strong business models and sustainable competitive advantages.

This approach has served Buffett well over the years and there's nothing to say that it won't serve you equally well.

If you can do this with $500 a month, even starting from zero you would have a nest egg of $1 million in 30 years if you achieve a 10% per annum return. That return is of course not guaranteed but is in line with historical averages. So, it certainly is something to aim for.

Final thoughts

Overall, I think this shows the importance of not losing money recklessly with ASX shares.

Instead, investors ought to consider investing in quality, profitable companies that have sustainable competitive advantages and positive outlooks.

Resist temptation and grow your wealth slowly like Warren Buffett.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Berkshire Hathaway and Nvidia. The Motley Fool Australia has recommended Berkshire Hathaway and Nvidia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.