If you are working towards Financial Independence, Geographic Arbitrage can be a powerful tool. Arbitrage is a fancy word for taking advantage of the differences in markets, buying or selling the same thing in different places that is to your benefit. Geographic arbitrage is basically changing your physical location to your financial benefit.
Sounds sophisticated, right? Well, the idea is actually rather simple, however, the implementation, is not always easy. Below is more about the ins and outs of Geographic Arbitrage, as well how I am implementing it in my Financial Independence journey.
Save More or Stretch Further
What is the Geographic Arbitrage strategy? It is essentially living somewhere that money ‘goes farther’ than in the place where you earn it. This can be either actively or passively earned money. For example, you earn a Silicon Valley tech guru wage, but you live in rural Indiana. Or, your investments are in US dollars, and you use them to live in very affordable Thailand. Basically, you want to take advantage of lower cost of living places, while simultaneously taking advantage of higher paying markets.
Anytime you can cut down your costs, it means that you can either save more, or require less income! If you’re able to ramp up your savings, it will cut down on time you have to save to reach your goals. That means all the benefits of being Financial Independent and the milestones along the way can be enjoyed so much sooner!
Or, if you realize you can live somewhere that costs less than you’re currently paying, the goal amount you need to save can come down. Either way, it means less time to your Financial Independence goal number.
Is it for You?
For one thing, in order to take advantage of this strategy, you have to actually live your real life in one of these lower cost of living places. That may not always be convenient, may not give you the quality of life that you’re seeking. If you really enjoy being close to family and they all live in San Diego, might not be worth it to you to live somewhere other than San Diego. And yes, some places are cheap because they’re pretty crappy to live, in general.
Secondly, your job may just not lend itself to this sort of thing. While remote work has blossomed over the past few years, some push back has started. Like a pendulum, we may be heading back to the days of butts in their cubicle seats, who knows? Or your job may not be able to done remotely, in general.
Don’t despair; there may be other ways to lower your cost of living for people in these situations. House Hacking is another way that you can get creative and cut down that large housing expense. Check out my adventures in House Hacking here.
How to Implement Geographic Arbitrage Strategy
So, maybe you have a job that can be done remotely, your family lives all over the country anyway, or you’re tired of running into exes at the grocery store. Perhaps you’re the adventurous type and have always dreamed of living in another country. Basically, you’re open to making a big move. Now, its time to research, test, and implement.
Assess Needs and Risks
First, get clear on what you want and need out of a relocation. Think about your daily life, what makes you happy. Being uncomfortable can be okay, some sacrifices in life are required….but don’t make yourself miserable.
This is a time that you can you make lifestyle design choices. If you’ve wanted to be more active, maybe purposefully look for some where that has lots of outdoor activities. Places like that usually have fewer malls, too, which is also good for the savings plan!
Next, really consider the risks. If you move because you can be fully remote with your current job, consider what would happen if you lost THAT job. Are fully remote jobs in your field easy to come by? How could being fully remote affect your career development? Are you going to be stuck at a lower level, hurt your chances of promotion by being a fully remote worker? What if you save 30% with your arbitrage strategy, but you earn 50% less over your career because of missed promotion opportunities because of it?
Research
There are lots of tools in the digital world that can help you get an idea of the cost of living in various places. A good place to start are websites like Numbeo, SalaryExpert, or NomadList. Also stalk social media to see if there are events, groups you’re interested in. Read the local paper, watch the local news to get a feel for it. Somebody on YouTube has moved to the place you’re considering, I guarantee you.
Test
Don’t gamble your Financial Independence goals on liking a place you’ve never been. Nothing like actually going somewhere to see if you like it! Fit a visit into your budget and schedule before moving to a place. Go to the grocery store, go to a local meetup, hang out like a local.
If you’re a homeowner currently, maybe don’t sell your house right away and buy something in your new town. Rent for a while, to be sure. As much as you can test the waters without making any costly mistakes, the better. Especially if the move is intended to be very long-term. If you’re just planning to move for a year or so, then perhaps you can be a bit more risky.
How I’m Implementing Geographic Arbitrage
Blue is moving to Mexico! While I haven’t hit my goal number to fully retire, I’m flexing some of my Financial Independence to step away from my corporate job. A mini-retirement, sabbatical, adult gap year….call it what you will. My retirement accounts are pretty well funded, and should be able to ‘coast’ over the stretch of time between now and traditional retirement age to provide for a ‘normal’ retirement. Rental income will help pay the bills, along with some savings, for at least the next year or so. Leaving the US for this time period is definitely making the money stretch further, allowing me to step away from work for longer.
At some point, I will have to earn more income again. But I hope in the year that over the next year, to find a more meaningful, more in line with my personal values, way to provide for myself. Since I shouldn’t have to save such a large portion of that income for traditional retirement, my income needs will automatically be lower. And, if I’m able to continue to live in a lower cost of living country, like Mexico, that will lower it even further.
Whether or not this move actually helps me become fully Financial Independent faster or not is pretty much irrelevant to me. One year of ‘retirement’ now, knowing that I’m not going to have to stress to get a very high paying job at the end of it, already feels like I’ve won the game. Living abroad is something I’ve always wanted to do. I will get the opportunity to be outside and active, pretty much every single day. I feel like there is literally ‘a world’ of opportunity out there for me. And can be for YOU, too!
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