Warren Buffett Pays in Cash 98% of the Time -- but Should You Do the Same?

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KEY POINTS

  • Paying with cash means forgoing the perks you get with a credit card.
  • While sticking to cash can make sense in some scenarios, it's not always your best bet.


There are some drawbacks to using cash.

As one of the most successful investors of our time, Warren Buffett is a billionaire many times over. He can basically spend whatever he wants, whenever he wants.

But Buffett is known to be cautious when it comes to spending money. And he's a firm believer in not wasting money. He commonly cautions consumers against using credit cards, and prefers to pay in cash 98% of the time.

But should you stick to cash for most purchases? Or are credit cards a better bet?

The downside of cash

When you pay for purchases in cash, you get nothing back -- whereas with a credit card, you commonly get rewards you can redeem for gift cards, cash back, or other perks. Plus, when you pay in cash, you often forgo certain protections.

Say you buy an electronic device that fails shortly after you purchase it, and the merchant refuses to honor its warranty. If you paid cash, you may be out of luck. If you paid with a credit card, you may be able to dispute the charge.

The downside of credit cards

Credit cards can open the door to overspending. When you hand over a wad of cash, you're more likely to be cognizant of the total. When you swipe or insert a piece of plastic, you may not pay attention as closely.

And to be clear, overspending on a credit card is bad news. If you rack up a balance you can't pay off when your bill is due, you immediately accrue interest on that sum. And paying interest is akin to throwing your money away. Plus, too large a credit card balance could hurt your credit score. That could, in turn, make it more difficult and/or expensive to borrow money affordably when you need to -- for instance, if you require a mortgage to purchase a home.

What's the right call?

In some cases, paying cash can be smarter than using a credit card. Some gas stations, for example, offer deep discounts on cash fill-ups, so in those cases, it could make sense to forgo your credit card rewards. Similarly, many small businesses and restaurants now add surcharges to credit card purchases to help recoup their fees. So if you're able to pay in cash, you might save yourself money.

That said, some credit cards offer generous rewards for everyday purchases, and if there's no surcharge for using a credit card, you might as well go that route -- if you trust yourself to manage your credit cards and not go overboard. If you don't, sticking to cash is a better bet, because that can help you avoid debt.

But if you've had credit cards for years and never carried a balance, there's no reason to ditch those cards and pay cash all the time. That may be a system that works well for Warren Buffett, but remember -- he doesn't need credit card rewards and cash back for spending leeway or fun purchases. He can simply dip into his multi-billion dollar stash and buy what he needs. For the rest of us, however, those modest rewards might make a difference, so they're worth pursuing if you're good about avoiding debt.

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