The 54-year-old Englishman's warning came on the back of Rangers' second Old Firm defeat of the season.
The 54-year-old Englishman's warning came on the back of Rangers' second Old Firm defeat of the season as they lost 1-0 to Celtic in a League Cup semi-final on Sunday.
Celtic, who top the Scottish Premiership, dominated domestic football while Rangers, currently fifth in the table, were exiled in the lower leagues following financial collapse in 2012.
Celtic are also reaping the financial benefits of reaching the Champions League group stages, which will increase their spending power compared to their rivals.
Warburton knows a thing or two about money having spent 20 years as a City trader prior to exchanging it for a career in football coaching.
And while acknowledging a financial gap exists between the Glasgow rivals at the moment, Warburton says it's imperative Rangers spend wisely in the transfer market and build from the grassroots up rather than chase a short-term fix.
"The worst thing Rangers could do is spend recklessly to try to close that gap too quickly," he said.
"There is a financial gap that exists at this moment in time.
"They (Celtic) have a squad packed with international players. They are in the Champions League this year and are getting all the benefit of that in terms of playing experience and financial income.
"We recognise and respect that. We then have to sit down and decide how do we close it? How do we improve our squad? Can we invest astutely and wisely?
"We have to set aggressive targets to try and close the gap. If our supporters can see that, we will be in a good place.
"I read some ludicrous comments this morning about how my City background should make me aware of the power of financial muscle. I'm not a rocket scientist but I'm not a fool.
"Of course you recognise the implications of a rival club with a strong financial base at this moment in time. But what is also important is the target setting so we know what we have to do in what time frame in what gap.
"The worst thing we could do is not build strong foundations here, and from the chairman and the board down the club is very clear what we have to do."
Their hopes of a League Cup final may be gone but Warburton, whose side host St Johnstone on Wednesday, says Rangers can't afford to mope.
"There can't be any hangover, and there is no use in feeling sorry for yourself. There are no fitness or fatigue issues," he said.
"St Johnstone played yesterday (Sunday) too (they beat Dundee 2-1 in a Premiership clash) just two hours ahead of us and Tommy Wright and his team will be working hard to recover. We are looking forward to what will be another tough game on Wednesday."
Fixtures (kick-offs all 1845GMT)
Dundee v Partick Thistle, Kilmarnock v Hearts, Motherwell v Inverness CT, Rangers v St Johnstone, Ross County v Celtic