Episode Transcript
[00:00:00] Speaker A: In this episode, we talk about the tariffs you've likely been hearing about in the news, what they actually mean, and how you can prepare for them as a consumer. Let's get started.
[00:00:09] Speaker B: Let's get some money from New Money, New Problems. It's the New Money New Problems podcast, a show for successful professionals searching for the tools they need to navigate financial opportunities and obstacles they've never seen.
Negotiating compensation. Purchasing your first investment property. Helping your family with money. The highs and lows of entrepreneurship. Entrepreneurship. New Money brings new problems that require new solutions. Join us as we work through them together.
I'm Brenton Harrison, and this is the New Money New Problems podcast.
[00:00:47] Speaker A: Hello, my name is Brenton Harrison of New Money, New Problems and your host for the New Money New Problems podcast. Uh, this is probably the first episode I've recorded in a couple of months where I feel like my voice is at, like, 100%. So I'm feeling good. And even though the world's on fire a little bit, I at least feel like I have a strong enough voice to tell you the details of what to do now that the world is on fire. And along those lines, I don't mean to overstate things, but it's highly likely that you have seen things in the news talking about tariffs recently. And I'm not a macroeconomist. I'm not somebody who looks at industry trends when it comes to money, and will tell you, here's how the price of this nation's currency will be impacted by this or that. But I do want to make sure that we at least do a basic episode on what a tariff is, why people are talking about it, and how it could impact you. And in terms of what it is, it's actually pretty straightforward. A, uh, tariff is a tax on goods that are coming from another country into our country, or if you're in another country coming into your country, whatever the case may be. And that tariff or that tax is going to be paid at the port of entry. So in our country, we have the cbp, the Customs and Border Patrol, and the tax is going to be paid when the good comes into the country by the company that's bringing it into the country. And it's a pretty straightforward line to draw to say that if I am a company that's bringing a product across the border and it's costing me 25% more to do so now than it did a month prior, then at some point I'm going to have to make the decision of whether I eat the cost, which companies are going to do up to a certain extent because they don't want to piss off their customers, or do I pass a portion of those costs on to my consumers? So it may not be as A to B as, oh, it cost them 25% more, the price is going to go up 25%. It may be that it cost them 25% more, the Price goes up 10%. But because we don't know, it's causing a lot of angst in the country, as you can imagine, not just because of the idea of tariffs, but because of the particular countries that are involved, mainly China, Canada and Mexico. And if you look at the different areas of our economy, it doesn't take a genius to understand why this might impact some things that we buy on a regular basis. When it comes to China, it doesn't just have to be like an entire part or electronic that's made in China completely. There are certain parts and supplies that are made in China that go into products that may be manufactured elsewhere. But now it's costing that manufacturer more to get that part over to this country than it did before. When it comes to the automotive industry, this is one that people don't realize that because of agreements I will say that the Trump administration put into place, like the U.S. canada, Mexico agreement that was put into place during his first administration, there is a whole supply chain industry that's built between those three countries because that agreement told them that there would be free trade amongst those three countries. And while we don't realize it, parts that go into making cars go over and across the border multiple times in the process of producing one vehicle. So it's not as simple as building a car in Mexico, bringing it across the border and paying one 25% tax. If products go across the border three or four times, they're going to pay that tariff each time they go across. So it could have a monumental impact on the price that you pay for a car. When it comes to housing, there are estimates that over 30% of the lumber that's used in home building in this country is actually Canadian lumber. And in food, it's pretty obvious, I would say. And this I don't have the statistics to back up like I do with the Canadian lumber, but I would say that the majority of imported vegetables and fruits that you buy at the grocery store probably come from Mexico. So last week I was actually reached out to by a reporter from Kiplinger, and I contributed to an article talking about tariffs and how consumers can potentially respond or prepare themselves. So what I want to do in this episode is go after the break and through different areas like food, like housing, like cars, and general finances, and give you some tips for how you can prepare if these tariffs are going to impact you in a major way.
[00:04:44] Speaker C: This is the New Money New Problems podcast, a show for successful professionals searching for the tools they need to navigate financial opportunities and obstacles they've never seen. We'll be right back.
[00:05:03] Speaker B: Are you wondering what new money problems you might be overlooking in your financial life? If so, we've got great news. We've crafted the New Money New Problems gap finder to identify potential weaknesses in your finances in areas ranging from budgeting, investments, insurance, and even the threat your extended family's finances could pose to your household.
Please head to newmoney new problems.com Gapfinder to complete it today. Again, that's newmoney newproblems.com Gapfinder to take the assessment.
[00:05:42] Speaker C: You're listening to the New Money New Problems podcast. Subscribe now @newmoney new problems.com welcome back.
[00:05:52] Speaker A: All right, welcome back from the break. And let's go through some of these categories, uh, in terms of how to optimize. But then at the end, I'm going to tell you some scenarios where maybe you shouldn't be too worried about it, and I'll explain a little more detail when that time comes. But I want to start with food. And when it comes to food, I always back into whether or not someone is truly spending too much on food. And what I mean by that is oftentimes when we work with clients and they come and, and we're doing our cash flow analysis in our initial meeting, if we're talking about their pressure points at the beginning of that meeting, the two most common things that I'm going to hear are they're going to say, I spend too much on Amazon and I spend too much on food. And sometimes people are, uh, I wouldn't even say spending too much on food. But they're not doing other things that we would hope they would be doing, like paying down debt beyond minimum payments for things like credit cards or putting money into savings accounts or automated contributions into investment accounts. But if you are doing those things to an acceptable level, an acceptable is a very subjective term, then you start to say, well, if you are saving at a high clip, if you're investing at a high clip, if you're paying down your credit card and there's money left over after those things, why does it matter that you spent the rest of that money on a grocery bill or going out to eat as compared to something else in your life. It's there to spend because you took care of the things that you needed to take care of. Now if you're not in that situation and you're trying to figure out a way to build some cushion into your, um, budget to do things like saving, investing, or paying down debt, now we start to talk about what to do with things like food. And one of the first things is actually understanding where the costs lie. For example, if you look at my household, I spend a significant amount more on food than my wife, but my wife eats out more than I do. And the reason that's the case is because I go to the grocery store like every day. And if you total up the cost of what I spend at the grocery store, it actually costs more than her going down the street and getting a $12 sandwich as compared to what I purchased at the grocery store. And when you go to the grocery stor grocery store, if you're like me, a person who likes going to the grocery store, I know that's a rare thing. I'm going and I'm looking at the new snacks and I'm getting the exact things that I want. So if I want asparagus for a meal that I'm cooking, I get asparagus. And I really don't even look a lot of the times to see that asparagus may be the most expensive vegetable in this grocery store. And I may have cost myself a whole lot more money by putting asparagus in that stir fry as compared to putting broccoli in the stir fry or green beans in the stir fry, because I'm not paying attention to the pricing, then when you get to the middle of the store and you're talking about things that are packaged goods, your cereals, your olive oils, your condiments, and things of that nature. You also need to, in times where you're trying to find room, pay attention to some potential alternatives based on what's called a unit based pricing. So for example, you might have a 12 ounce bottle of ketchup, and then you might have a 16 ounce bottle of ketchup. And they have two different prices and you don't really know which one is more expensive based on the ounce. Unless you look at un pricing, what this model allows you to do, it's a little sticker that's off to the left of the price. It shows you if this had the same common unit of measurement, how much would it cost per that unit. So if we're looking at ounces it may say that the 12 ounce bottle of ketchup is 35 cents an ounce where the 16 ounce bottle of ketchup is 30 cents an ounce. If you're looking at two completely different products, Heinz Ketchup versus some other brand that you're comparing, you may see the Same size bot 12 ounces, 12 ounces. And the lower cost per unit may be the thing where it's like, look, you know, I like Heinz ketchup, but it's not the end all. Be all for what I dip my fries into. This alternative, when you might have 20, 30, 40 items in a cart over the course of a week is something that can actually save you some significant funds over the course of a monthly period. And lastly, budget alerts. Four problematic areas in your budget. One of the consistent things that I see is for people who are trying to lower those costs, they have no way of tracking it. So they're spending as they want to. But there's no mechanism to say, here's how much I would like to spend and stay within. And I'm, um, notifying myself when I've gone over that amount. So that's why there are tools out there like you need a budget. There are tools out there like Monarch Money. There are budget softwares where you can tie your credit cards, your bank accounts to that software so that when you make those purchases, it totals up how much you're spending in each category. And when you go over a set budget, it will actually notify you. Some of them will notify you via text, most of them will notify you via email. Does that mean that if you get alerted on the 20th that you've overspent on groceries that you're just not going to eat for the next 10 days? No. But if you've overspent by the 20th or the 15th, it may be the thing that spurs you to pay more attention to the green beans versus the broccoli, the broccoli versus the asparagus the next time you go to the store. Next up, housing. And this is an area where I will tell you for a lot of clients that we're talking to who had intentions on selling a home or buying a home, if, uh, it's something that was just a want to purchase, you know, and they can technically stay where they are, we're kind of telling people to stay where they are. But if you're in a situation where you just have to buy a home, then there are some things that you can consider. One of those would be what's called rate buydowns. So a rate buy down is essentially when you either are offered by the lender or in some cases the builder to give extra money at the time that that house is being built, or give extra at closing to buy down your interest rate. And the easiest, and I would say the most consistent way that I've seen to buy down a rate, and this can change based on the lender, can change based on the builder, is you do it based on points. And a point is 1% of the loan amount. So, for example, with, uh, a $500,000 loan, one point would equal $5,000, 1% of the loan amount. And oftentimes what you'll see is that paying one point reduces your mortgage by about a quarter of a percentage. So if you have a $500,000 loan at six and a half percent, you can pay $5,000 to buy down that rate to 6.25%. And to be in this position where rate buy down makes sense, in your position to actually do it, you have to have assets on hand, which we'll touch on later in the podcast. So not everybody can do it, but if you can do it, it is one way that over the course of time, if you have the money up front, you can lower the long term costs of own. Because, for example, if you can afford two points and buy it down a half of a percent, while it seems like that's not that big of a deal, over the course of a 30 year mortgage, that could save you significant funds both in terms of the monthly payment and the interest that it takes to pay off that loan in full. As an example, if you're looking online, you're looking at a mortgage payoff calculator, and we're looking at a $500,000 mortgage for a 30 year loan at six and a half percent. If you go to the amortization table, you can see that the cost of this on a monthly basis would be about $3,200. Before you add things like homeowner's insurance and property taxes and the like. And over the course of 30 years, it would take you $1,137,722 to pay off that loan that was initially a $500,000 loan. Now let's assume that somebody pays two points to buy down their rate a half a percent. So they pay $10,000 to pay down their loan to 6% from the original 6.5. Well, you can see that instead of $3,200, it lowers their payment by about DOL month. But in terms of the total repayment, they save almost $60,000 over the course of 30 years because of the $10,000 they paid on the front end of the process. So it's a balancing act, because money that you have now is typically more valuable than money that you have in the future. But if you have the reserves to buy down a rate, it's something that could lower your total cost of ownership and lower your monthly payments in the face of potentially increased home prices. Another thing I would want you to consider before you even enter into this process and based on the type of home for which you're looking, is to actually consider how long you'll be in the next home. We've talked about this in previous episodes. I am not a big fan of people going through the process of buying marginally better homes than the one that they're currently in. And the reason I'm not is because when you buy a home the first time, it often doesn't cost you anywhere near as much as it will in subsequent purchases. You're likely using a first time home buyer program where you're putting three and a half percent down on that home as compared to the 10 to 20% that will be needed in subsequent purchases. And when it costs you more to buy your next home, there's typically two ways that you're going to finance those additional funds. Either you are hoping that the home significantly increases in value from the time that you purchased it, you're going to use a portion of those proceeds or all of those proceeds to pay the down payment, or you now have to have the additional funds to make up that difference. And the difference between 3 1/2% down on a $500,000 home vers 10 or 20% down is significant. So if your home doesn't increase in value significantly, you are putting a strain on your ability to actually go get a home that's a substantive improvement. And while in certain markets that was a near guarantee that your home would increase in value significantly the past few years, even in the quote unquote booming markets like a Nashville, like a Tampa, like a Miami, uh, like in Atlanta, uh, over the past three or four years, you're starting to see homes that are either not increasing in value at all, some are decreasing in value, but definitely not a big enough jump where you can just assume that I can buy this home and within three to five years I'm gonna get enough from the sale to go get an even better home. So if you're in a home search and you don't think that you can significantly upgrade, then I would consider staying put if you're able to. But if you are in a position where you have to buy, even if it means potentially paying a little bit more and doing things like rate buy downs to make sure that the long term costs are mitigated, I would make sure that you are truly getting a home that is both an up upgrade as to where you are currently, but in a worst case a place that you can stay for a significant period of time so that if it doesn't increase in value or you're not in a position where the environment is stronger to buy your next home, that you don't feel like you're in a place where you can't stay long term. And then lastly, cars and I have shared that there is like outside of credit card debt, there's really no expense that I hate more than a car payment. You know, especially a new car. If you get a used car and you're going to drive it to the wheels fall off, uh, you know, then I'm a fan of it. You know, some people say I shouldn't go so hard on buying a new car, but I'm just not a fan of buying a new car. I would rather you lease a new car than buy a new car. But the fact of the matter is sometimes you need a car in an environment like this where the price of those cars could significantly be impacted by tariffs. The real note is that you just have to pay attention because the price that you pay for a car at one dealership could be radically different than if that exact same car were on the lot at another dealership. And that's why there's a term with cars that you see regularly but you probably don't pay attention to when you see a commercial for a car dealer and that is MSRP manufacturer's suggested retail price. And the MSRP is what the manufacturer, uh, of the car. Like the Toyotas or Fords say this is what we feel this car is worth. But that's not what you pay for the car. Each dealer has the ability to set the price for the car. And they may do it to compensate for things like labor. They may do it to compensate for things like the fact that they have a ton of cars on the lot and they're trying to get this off. So maybe they lower, lower the price if they feel like they're doing extremely well and there's no reason for them to cut costs. And it's the beginning of the month and things are Looking up, they may add price to the car because they're going to just bank on the fact that you're not going to go across the other side of town and see what they're charging over there. And there's a really, really interesting episode on this American Life about the price of cars. We'll put that in the show notes. It really didn't have much to do with finances, but it's a fascinating look at what's going on at a particular car dealer and how that can influence the price of cars even going down. Why it's often more cost effective to buy a car at the end of the month than it is at the beginning of the month. So if you're in the market for a car, you first want to pay attention to what's going on industry wide. Meaning that there are some dealers out there that might be stacking inventory in anticipation of an expected tariff. And if there are no tariffs, then maybe they are sitting there with a bunch of cars that they have to get off the lot. But you also want to pay attention to each individual dealer when it comes time to purchase to make sure that there may not be another dealer across town or even someplace, uh, online that offers a significantly better deal that you wouldn't have been aware of just because you didn't take the price shopping element as seriously as you should for a major purchase. And before we get out of here, I want to talk about what I meant by like, not over optimizing if you don't have to. And what I mean by that is we can get into these cycles where we feel like we are actually making a big, uh, improvement on something financially, but it doesn't really move the needle as much as you think. An example that I would give is, you know, I come across people who, who they try to flip CDs, right? Oh, I have this certificate of deposit that's offering me 3%. But then when that expires, I found one at this bank over here that offers 3.25%. They'll do the same thing with high Yield savings accounts. They'll open 10 different accounts and they'll move their money from one to another based on an interest rate. And I try to get them to actually break down on a yearly basis what the difference is between one account and then another. And in those instances, I encourage them to actually break down the tangible impact of moving that account from one place to another on a yearly basis. For example, let's say that you have a High Yield savings account that's offering you 4%. And you take your money out of that bank because you find one that offers 4.25%. Well, if you have $40,000 in that account, and many people who are doing this type of optimization don't even have that much in the account on a yearly basis, that quarter of a percent means that you got an extra $100 in interest. That's it. For all the headache that comes with moving that level of money from one place to another to optimize 0.25%, you benefited yourself by an additional hundred dollars. Now, it's not that a hundred dollars is no money, but is it so much money that it's worth going through that process over and over again because you think that you're making strides financially and the same is true with the rest of your finances. When it comes to things like tariffs, it is very easy to look at what's going on in the news and feel worried about what's going to come financially. But if you're in the home that you plan to be in for the next few years, if you're in the car that you plan to be in for the next few years, if you're going to the grocery store, you don't feel like you're spending an arm leg already, then that extra 5 or 10% may not mean that much. In terms of any steps that you have to take, you may be just fine. So I don't want you to worry about things when you already feel settled. But the one thing that I would take away is in times like this, there are a number of things, including tariffs, that to me speak to the importance during this period of making sure that you have ample cash reserves, that you've paid down consumer debt, and that you're contributing to your non qualified investments that you can access before retirement age if necessary. If there are tariffs, in light of the things that we've talked about with student loans, in light of the fact that interest rates for home prices have not really gone down as much as we would have liked. Periods like this to me would say if you're not feeling like you're well positioned, then we do need to make sure we have an increased focus on things like paying down our credit card debt to make sure that we have three to six months in savings, to make sure that we're putting money into a non qualified investment account so that if you're in a position where you need the funds, they're there, there, or if we need to ride it out and stack cash until the situation has improved that you're well positioned at that time to take advantage. That's all I got for you this week, but I'll be right back here again next Friday with a new episode. See you then.
[00:22:00] Speaker B: From New Money, New Problems. This was the New Money, New Problems podcast, a show for successful professionals searching for the tools they need to navigate financially, opportunities and obstacles they've never seen.
