Much like you, famed Berkshire Hathaway investor and CEO Warren Buffett dutifully files his taxes every year – a practice he started at age 13, when he owed $ 7 from his income. paper road.
The average individual federal tax refund so far in the current filing season is around $ 2,900, according to IRS data. While it’s a drop in the bucket for Buffett, the popular businessman knows that this amount of money can make a huge difference to the average American household.
Berkshire Hathaway CEO took some time at his annual meeting of shareholders on May 1 to further convey his investment wisdom. The famous frugal businessman also has some tips on how to spend an influx of money wisely.
Due to additional internal IRS issues including staff shortages and broken equipment, you might be waiting awhile for your refund. But with a little help from Buffett, you’ll know exactly what to do once you get there.
The Wisest Way to Use Tax Refunds, According to Buffett
Buffett says that every time you earn extra money your first move should be to pay off credit card debt. If he says “the world is in love with credit cards” they are way too expensive.
While Buffett says he understands that many Americans are relying on credit cards to help them get through the pandemic, it seems some people see their plastic as “a piggy bank to loot.”
âIf I owed 18% money, the first thing I would do with the money I had would be pay it back,â Buffett told his friend. “You can’t go through life borrowing money at these rates and be better off.”
But what if your tax refund isn’t enough to pay off all of your credit card debt? You could make your remaining balances more manageable and affordable by turning them into a low interest debt consolidation loan.
Buffett wouldn’t say to use your repayment on your mortgage
Buffett is passionate about avoiding carrying a balance on your credit card: âIt just doesn’t make sense,â he said at the virtual shareholders meeting.
But that doesn’t mean that he thinks all the debt is bad – in fact, he wouldn’t suggest that you use your repayment to pay off your mortgage.
Buffett took out a 30-year mortgage in 1971 when he bought a vacation home in Laguna Beach, California, even though he could easily afford to pay it off in cash.
In a 2017 interview with CNBC, he called the 30-year mortgage “an incredibly attractive instrument for the homeowner.”
Fast forward to 2021, this still rings true as mortgage rates are still at historically low levels.
Buffett says his home loan made good financial sense: âI thought I could probably do better with that money than buying the house entirely in stock,â he told CNBC.
Do you already have a mortgage? Now that the 30-year fixed mortgage rate is once again below 3%, mortgage data and technology provider Black Knight says 13 million homeowners still have the opportunity to save an average of $ 283 per month on a refi.
No credit card debt? Then invest your refund
So what did Buffett do with the money he allegedly used to buy the house? He bought shares in his own business. He bought around 3,000 shares of Berkshire Hathaway at around $ 40 each – and by the time of the 2017 interview, that investment had grown to $ 750 million.
If you don’t have credit card debt or other urgent needs to cover with your tax refund, follow the example of Oracle of Omaha: Consider investing what you get back from the tax agency. . You can even buy Berkshire Hathaway.
Berkshire stock has posted average annual returns of over 20% since the 1960s, compared to just 10% for the S&P 500, according to multiple media outlets.
Buffett never split his company’s Class A stock (BRK.A), so the stock is notoriously expensive – now a bit more $ 400,000 per share. But you can still grab a âsliceâ of stocks with a popular investing app, which allows you to buy âfractions of stocksâ based on what your budget allows.
Another way to make your redemption money work for you is to open an account with an app that allows you to create your wallet using the “spare currency” of daily purchases.
With the stock market currently hitting record highs, there has never been a better time to dive into investing.