Geographic Arbitrage

Geographic Arbitrage: keep living costs low while income is high by relocating
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All you location independent digital nomads already know this secret, and it’s a good one. Find a way to earn money that is not dependent on you living in one particular high cost location, then move to a low cost location and your money goes a lot farther. Some people call this geographic arbitrage or geoarbitrage.

This technique is especially useful for those who make their living online, whether that’s blogging, designing, consulting or coding. If you have no interest in working online you can still use this technique if you have special skills that are in demand in many locations. Some ideas are artist, massage therapist, nurse, mixologist, teacher, chef, DJ, construction.. you get it, there are lots of options.

However, typically geographic arbitrage works best if you work online with clients that are based in a high cost of living location so that you can get paid in a more valuable currency and your money stretches farther.

Another way to take advantage of geoarbitrage to to take your skills and experience to another part of the world. For example, you might have had a successful career in London or New York and want to retire early or leave that rat race. You can take these specialized skills to open a small business or begin consulting in your new LCOL area where there may not be as many people with your talents, but there might still be demand. Some examples might be: offering legal or financial advice to expats, part time medical services, or a graphic design consultant.

Geographic arbitrage can also be great for those who are retired, financially independent or plan to retire early. Again, you can live for less, stretching those savings.

There are several places online where you can find cost of living information for cities and towns all around the world. These lists might help you think of places you might like to try out. Of course there are well-known locations where lots of expats, retirees or digital nomads flock. For example San Miguel de Allende or Chiang Mai.

Check out Nomad List or Numbeo to compare average rent costs and typical cost of living for places all across the globe.

Geographic Arbitrage: keep living costs low while income is high by relocating

Things to Consider Before Relocating

One challenge of living in one country and working in another is getting paid in multiple currencies. Check out this post to compare Paypal and Transferwise. Let’s say you are American and move to Spain. Your savings and income may still be in USD. How will you plan to convert these into Euros? If you relocate you will probably want to open a bank account in your new country. Know the steps you need to take to do this as it can sometimes get complicated. How will the funds flow? For example, you may need a registered local address in order to open the bank account, but to get the registered address you will need to have rented or purchased a house and filed forms with the local government. Getting a cell phone plan may also require a local registered address, and utilities contracts or a local transit pass might require linking to a local bank account. These are just things to consider when you are planning your move.

Financial considerations can get even more complicated if you do not plan to move to one location but instead will be location independent. Then you’ll need to carefully weigh decisions about where your finances and legal residence will be located. Where will you pay taxes and have a legal address? This will likely depend on your passport and visa status. For example, many countries will not allow you to open a bank account with only a temporary tourist visa.

Another thing to look at when considering a move is the legal status of residency in your new location. Let’s say you are moving from California to Arizona. It may seem simple because there are no visas or passports required, but you should still fully research the tax implications and costs. For example, can you avoid paying state taxes in California if you still have property and bank accounts in the state? Are the costs of insurance higher or lower? What steps will you need to take like registering your vehicles and applying for new licenses?

When relocating abroad things can get even more complicated. Some people relocate due to tax reasons. Be warned that this may require careful research to see if you can avoid paying taxes in your original home country. Make sure the new location has favorable tax laws and that you know how to file. You’ll probably need to hire someone to help you in the new country due to language or unfamiliar rules. I prefer to do my own taxes so I personally find this annoying when living abroad.

You’ll also want to factor trips “home” when calculating the savings from relocation. For example, if you are from New York and decide to move to Thailand, how often do you plan to travel to the USA to visit family and friends? A few flights, hotels and other costs can quickly add up if you are on a tight budget. In this case you should be OK with rarely returning to New York and doing most of your traveling in the southeast Asia area.

My Experiences with Geoarbitrage

I wish I could say that I am an expert at geoarbitrage. I do know something about it as I am location independent and live abroad. But unfortunately/stupidly I chose to relocate from one HCOL area to another. Luckily I was able to remain frugal so this did not affect me too much. But I spent last summer in a LCOL area, and realized how much further my frugal budget could stretch if I relocated. So I have decided to move!

Luckily since I am already location independent so it’s easy for me to make this change. I’m looking forward to a similar lifestyle at drastically reduced costs. If I go bananas I can enjoy an even fancier lifestyle still at a reduced cost. My lifestyle is already pretty nice so probably the only creep would be eating out more often.

Some of the lower cost of living locations I am considering for the next year are southeast Asia, Mexico, southern Europe and even some small town areas of the USA. In fact, I am hoping to move between these places every few months as the seasons and my moods change.

As  I experiment with this lifestyle I will share anything I learn!

I prefer slow travel and having a home base to explore from. I have tried faster paced long term travel and I find it exciting but tiring. My major complaint is dragging my luggage around every few days. And I also feel it is wasteful – both the environmental impacts of fossil fuels and of course frequent transport costs extra money. I also find that I do not accomplish much work because I am too busy planning, sightseeing and moving from place to place. I think if you travel long term you need to be sure to schedule downtime for work and rest. You still need those lazy days where you just stay home in your sweatpants, even if you are in an exotic locale. Look for another post soon on the benefits of slow travel.

Are you location independent? Do you take advantage of geographic arbitrage?

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