May 13, 2021

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Warren Buffett says make this the priority for your $1,400 stimulus check

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Warren Buffett says make this the priority for your $1,400 stimulus check

Warren Buffett says make this the priority for your $1,400 stimulus check

The IRS says it just sent out a second batch of $1,400 stimulus checks, with an official pay date of March 24, and says more will follow on a weekly basis. About 127 million relief payments have been distributed so far, worth around $325 billion.

But no matter how many batches go out, investing legend Warren Buffett will never get a stimulus check.

It’s not because his net worth recently brushed $100 billion. Instead, his annual income — including a $100,000 salary and billions from dividends — puts him way over the limit to qualify for the third stimulus payment (and the fourth, if that comes along).

Even so, Buffett is a good source of advice on what to do with your relief money. He’d tell you to start by tackling one big priority.

The best use for stimulus cash, according to Buffett

WASHINGTON DC - MARCH 30, 2020:  United States Treasury check surrounded by US currency, representing COVID stimulus check payment.

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Buffett has some simple advice on what to do with your $1,400 stimulus check, or any extra cash that falls your way: Get rid of credit card debt. “The first thing I’d do with any money I had would be to pay it off,” he says.

During a 2020 online shareholders meeting for his company, Berkshire Hathaway, Buffett said a mistake is using credit cards “as a piggy bank to be raided.”

He told the story of a friend who’d come into a windfall and asked his advice on what to do with it. He learned that the woman also was carrying a credit card balance — at 18% interest.

The investing icon told her to ditch the debt first thing. “It just doesn’t make sense,” he told the shareholders, according to a transcript. “You can’t go through life borrowing money at those rates and be better off.”

If your $1,400 stimulus check won’t totally erase your credit card debt, you might make your remaining balances more manageable and affordable by sweeping them up into a debt consolidation loan at lower interest.

But don’t use your stimulus check for another kind of debt

St. Augustine, Florida - March 8, 2019: Beautiful beach houses on St. Augustine Beach in Florida at sunset.

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Though Buffett acknowledged at the shareholders meeting that “the world is in love with credit cards,” he’s strongly opposed to carrying balances and not paying them off.

But he doesn’t feel that way about all debt — and would not tell you to put your $1,400 payment toward your mortgage.

In a 2017 interview with CNBC, he called the 30-year mortgage “an incredibly attractive instrument for the homeowner.” That’s truer than ever now, with mortgage rates still at historically low levels.

Buffett is so sold 30-year mortgages that he took one out when he bought a Laguna Beach, California, vacation home in 1971 — even though he could have paid cash.

He says his home loan made smart financial sense: “I thought I could probably do better with the money than have it be an all-equity purchase of the house,” he told CNBC.

No credit card debt? Then invest your stimulus check

Business man trader investor analyst using investing app on smartphone.

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In fact, Buffett says he took the money he would have used pay for the house in full and spent it on stock in his own company. He purchased around 3,000 shares of Berkshire Hathaway at roughly $40 each — an investment he said had mushroomed to $750 million by the time of the 2017 interview.

If you don’t have credit card debt or other pressing needs to address with your stimulus check, then take a lesson from the legend. Consider investing your $1,400. Maybe even in Berkshire Hathaway.

Berkshire’s stock has enjoyed average annual returns of more than 20% since the 1960s, versus just 10% for the S&P 500, according to multiple media outlets.

Buffett has famously never split his company’s Class A shares (BRK.A), so the stock is notoriously expensive — approaching $400,000 per share. But you could get a sliver of Berkshire using a popular stock trading app that allows you to buy fractions of shares with as much money as you can afford to spend.

Another way to invest your stimulus check is by opening an account with an app that lets you build your portfolio using “spare change.” When you link the app to a credit or debit card, your everyday purchases are rounded up to the nearest dollar — and the difference is dropped into your investing account.

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