No surprise here: Warren Buffett is not receiving a $ 1,400 stimulus check, and not necessarily because the investment legend’s net worth recently reached $ 100 billion.
Eligibility for one of the new direct payments is based on how much money you earn, and Buffett’s income puts you over the limit. The files with federal regulators show that he receives $ 100,000 in salary from his company, Berkshire Hathaway, in addition to receiving billions more in dividends each year.
But even if the folkloric entrepreneur does not qualify for the third stimulus check (or whatever else comes), he has some advice on how you should use yours. That is, Buffett would give you a high priority for money.
The wisest way to use stimulus money, according to Buffett
Buffett says that whenever any extra money falls into your lap, your first move should be pay off credit card debts. Although he says that “the world loves credit cards”, they are too expensive.
During Berkshire Hathaway’s annual shareholders’ meeting last year – held online for the first time – Buffett shared an anecdote about a friend who was unexpectedly lucky and asked for his advice on what to do with it. It turns out that she also had credit card debt, with 18% interest.
The billionaire indicated that he understood that many Americans depended on credit cards because of financial difficulties related to the pandemic. At the same time, he said that some people think of his plastic as “a piggy bank to be invaded”.
“If I owed some 18% money, the first thing I would do with any money I have would be to pay,” said Buffett to a friend. “You can’t spend your life borrowing money at these rates and be better off.”
But what if your $ 1,400 stimulus check is not enough to fully pay off your credit card debt? You could make your remaining balances more manageable and affordable by rolling them into a lower interest debt consolidation loan.
Buffett wouldn’t say to use your stimulus check for your mortgage
Buffett is vehemently opposed to carrying credit card balances: “It just doesn’t make sense,” he said during the virtual shareholder meeting.
But he does not feel that way about all debts – and I would not advise him to put his $ 1,400 payment on the mortgage.
Although he could pay cash, Buffett took out a 30-year mortgage in 1971 when he bought a vacation home in Laguna Beach, California.
In a 2017 interview with CNBC, he called the 30-year mortgage “an incredibly attractive tool for the homeowner”. This is even more true today, with mortgage rates still at historically low levels.
Buffett says his real estate loan made financial sense: “I thought I could probably do better with the money than a full house purchase,” he told CNBC.
No credit card debt? Then invest your stimulus check
In fact, he says he took the money he would have used to buy the house immediately and bought shares in his own company. Buffett bought about 3,000 Berkshire Hathaway shares for about $ 40 each – an investment he said had grown to $ 750 million at the time of the 2017 interview.
If you have no credit card debt and no other urgent needs to cover with your stimulus check, learn a lesson from the legend. Consider investing your $ 1,400. Maybe even at Berkshire Hathaway.
Various media outlets report that Berkshire shares have had average annual returns of more than 20% since 1960, compared to just 10% for the S&P 500.
Buffett never split his company’s Class A shares (BRK.A), so the shares are notoriously expensive – now approaching $ 400,000 per share. But you could get a piece of Berkshire using a popular stock trading app that allows you to buy fractions of shares with as much money as you want to spend.
Another way to invest your stimulus check is to open an account with an application that allows you to create your portfolio using “replacement change”. When you link the app to a credit or debit card, your daily purchases are rounded up to the nearest dollar – and the difference is added to your investment account.