Here’s What Buffett Says You Should Do With Your Stimulus Check
If you’re like many Americans, you may be planning to use your $1,400 stimulus check on bills or food. A recent GoBankingRates study revealed that 45% of Americans used past stimulus checks to pay the bills, while 39% purchased groceries.
But Warren Buffett has other opinions on what you should do with the new round of funds, according to a Yahoo! Finance article. First, he advised Americans to pay off credit card debt — especially if it carries high interest rates.
Buffett shared a story during Berkshire Hathaway’s annual shareholders meeting held virtually last year about a friend who sought advice on how to spend a surprise influx of funds. She may have been seeking stock tips or investment advice. But Buffett told her to pay off her high-interest credit card debt first, Yahoo! Finance reported.
“If I owed any money at 18%, the first thing I’d do with any money I had would be to pay it off,” he said during the shareholders’ meeting. “You can’t go through life borrowing money at those rates and be better off.”
However, the average American family carries more than $6,000 in credit card debt, according to the Federal Reserve’s Survey of Consumer Finances — and that was pre-pandemic, in 2019. The $1,400 stimulus isn’t likely to make a significant dent in that level of debt.
If your credit is good, you might consider consolidating high-interest balances onto a 0% introductory APR credit card and then paying it off during the introductory time frame, typically between six months and 18 months.
Or you could take advantage of today’s low interest rates and take out a home equity loan or a home equity line of credit and use the cash to pay down credit card balances.
After all, a home mortgage is one type of debt Buffett approves of. In a 2017 interview with CNET, as reported by Yahoo! Finance, Buffett, whose net worth totals $96.3 billion, noted that he took out a 30-year mortgage in 1971 to purchase his Laguna Beach, California, vacation home.
“I thought I could probably do better with the money than to have it be an all-equity purchase of the house,” he told the news outlet.
Indeed, rather than tie up the money by paying cash for the house, he bought stock in Berkshire Hathaway, his investment firm. Purchasing 3,000 shares for about $40 each in 1971, Buffett’s investment grew to $750 million by 2017.
It’s not surprising that Buffett advises those with no debt to invest their stimulus funds. You may not be able to afford Berkshire Hathaway as it nears $400,000 per share, says Yahoo! Finance, but you can use stock trading apps to invest in fractionals, or a portion of one share of a stock. You could also purchase an exchange-traded fund that holds Berkshire Hathaway as part of its portfolio.
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