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Have you ever thought of quitting your job in the U.S and moving over to Australia to start life just because you feel the cost of living in the latter country is cheaper?
Think about it this other way.
Have you ever left a city/country for another city/country just to enjoy their low cost of living while you retain your job remotely in the former?
That brings us to the question, what is geoarbitrage?
What is Geoarbitrage?
The term geo arbitrage means taking advantage of the difference in living costs between different geographic locations.
It means relocating in order to benefit from the lower costs of a city/country. The idea is inspired by the desire to make more money.
In other words, it involves moving to a place with a lower cost of living while keeping the same or a higher level of income.
Geoarbitrage brings about financial freedom and independence sooner. Saving money by moving to a place with a lower cost of living means you free up more time needed to earn money.
It’s also imperative you note that you don’t have to relocate permanently. Moving out of a particular city or country to another, for the time being, can rack up your savings and have a massive impact o your finances and life generally.
When this is done earlier in your career, the compounding of those extra savings will bring you more freedom later in life.
So, if you’ve ever nursed the intention of maybe living the U.S for New Zealand where you feel the cost of doughnuts is generally cheaper, you might want to see this before making that final decision.
Is Geoarbitrage For Everyone?
There are some characteristics, situations, or traits that make it possible for one to relocate easily while there are some circumstances that don’t just look to buy the idea.
For instance, if you’re pretty satisfied with your 9-to-5 job and really don’t want to take any risks and try new stuff or even work beyond your usual timeline to become self-employed, you might have no reason or urge to leave the job let alone relocating.
There are also situations where the urge and desire to leave might be there but the mere fact that you have a strong relationship or family and you can’t afford to take them along proves a hitch.
Now, here’s it, for there to be an intention, there must be a desire that’s willing to be backed by a certain level of strength and sacrifice. For instance, you might have to leave your family, physically, if you can’t afford to take them along. All you need is a personal conviction and the right attitude.
How To Make The Best Out Of Geoarbitrage
Before taking the decision to leave a city/country for a place where you feel you’ll gain more finance, there are major things to consider;
- Cost of living
- General lifestyle
Income is a very important factor to consider while thinking of geo arbitrage. You should have a strong understanding of your financial plans and should be able to know and see the obvious benefits of the new intended location in terms of finance. Here are a few questions you need to answer…
- Are you switching jobs?
- Do you work remotely?
- Will you be starting a new business?
- Can you live off passive income?
- Do you have multiple income streams?
- Will your earning power change at all?
According to Juststartinvesting.com, for geo arbitrage to be truly successful, you should maintain or even increase your income while moving. At a minimum, you need to have an understanding of what to expect and your next move in case things don’t go as planned.
#2 Cost of living
When you’re building your budget for your new location, you can compare the cost of living index to the typical US Household using an expense calculator. These calculations will help you get an estimate of your “FI Number”, i.e. the amount you need to invest to support your cost of living.
Cost of living can be broken down into many different pieces, including the following:
Leaving a place where the tax is on the high side for a place where they pay higher taxes or similar amount makes no sense. Therefore, you need to consider the taxing of your proposed destination before moving out.
One easy way to way to lower your taxes, and your cost of living, is to move somewhere with no state income tax.
It is no surprise that the cost of housing and property differs per state, city, and neighborhood.
For instance, if you want to live in the heart of San Francisco, a modest apartment could cost upwards of $1.4 million! According to Zillow, that is the median home price in this expensive city. Compare that to Cleveland, where the median home price is only $66,000. What do you think?
So, the point here is you have to compare the cost of housing before taking a decision.
This is one of the things to put into consideration too. It might not really be fixated on the cost here but ease of access.
You need to find out if you might have to take a long walk to the railway station or if you can easily get a cab from a closer point.
Additionally, you need to figure out if you’ll be needing a bike or car.
If yes, then you need to find out the cost implications and other secondary expenses such as; insurance, gas, repairs, and parking system.
Things like food, clothes, trips to the salon, entertainment of any sort can be classified as everyday necessities that you might not be able to live without.
Therefore, before considering a geoarbitrage, you need to have an insight into the involvements. For instance, in Miami, it might cost you $1.29 to grab a bottle of beer in a bar and $5.20 in New York to get that same beer.
That is to say, the cost of goods and services differ according to location.
If you have kids who are planning to go back to school or you wish to enroll for a program in school, you need to find out the financial involvements and make straight comparisons.
Asides the cost of education, you also need to weigh the quality of educational institutions in the city or country you intend to relocate to.
#3 General Lifestyle
This has to do with the scenery of the proposed destination and the lifestyle of its inhabitants.
For instance, someone who loves mountains might fancy Montana while someone who’s up for beachy moments will always choose Florida.
Summarily, you should take into account your quality of daily life and where you want to be when making your choice. Along with all of the cost of living info above.
Steps To Take Carry Out A Geographic Arbitrage
With a basic knowledge of things to consider before making the decision, here are necessary steps you need to take in order to carry out a successful geoarbitrage.
#1 Choose a location
After you must have done your research based on the above mentioned factors, the next ideal thing to do is to choose a place that suits your desires in terms of financial benefits and lifestyles.
#2 Do the financial calculations
In line with your findings, you need to make some financial plannings. I’m sure you know you might have to cater for a whole lot of costs at first. Also, find the cost of living.
#3 Move in and explore
After you must have done the above steps, the next ideal step to take is to move in and explore. If you can afford to visit, that’ll be amazing too.
The goal of geoarbitrage is to maintain a higher level of income (including retirement income) as best you can, while simultaneously lowering costs. Therefore, it’s important you carry out a background check before deciding on where to move to.