It seems in this savvy self-help society, we are always trying to optimize our lives and improve upon something but that can quickly get overwhelming since we feel we are never enough.
Yet, there are a few techniques that you can implement just once and allow them to drastically change your life, physically, mentally, emotionally and of course, financially.
In short, geoarbitrage can help you save money, grow your net worth, reach FIRE (financial independence retire early) faster, and potentially increase your overall happiness.
It was coined by the most popular self help guru out there Tim Ferriss. If you havenât read his book, âThe Four Hour Work Weekâ highly recommend it, especially if you want to get more done in less time and actually see 80% of your results done with 20% of effort.
Nothing beats that.
Finances and Geoarbitrage
The word geoarbitrage can be broken down into two parts, âgeoâ and âarbitrage.â
Geo is referencing geography.
Arbitrage involves taking advantage of a price difference between two or more markets.
Simple enough.
Put them together and you get geoarbitrage, the process of taking advantage of the different prices for different markets or cities.
More specifically, itâs defined as moving to a lower cost of living area while maintaining the same or higher income.
Most people choose where they live mainly due to their job, unless you are self-employed and in that case it would be ideal to live in a low cost state where you donât have to pay any state income taxes.
Finding a place to live is a difficult, grueling and long process-and as with everything, it depends on price.
Now the premise of geoarbitraging isnât about touring the world or finding an optimal place to live.
It ultimately is about saving money and making the best out of what you have.
Factors to Consider When Adopting Geoarbitrage
If youâre planning on going on an extreme budget to save 80% of your income without wanting to feel like youâre saving a lot or downsizing, moving to a lower cost place is easiest.
With more liquidity boosted into the market these days with a low interest rate environment, this is the best time to buy single family homes. Plus with all the savings majority of Americans have compiled during this pandemic, it wonât feel as hard to save anymore if youâre up for this challenge.
Letâs dive into the crucial elements that affect your finances and location:
-Income
-Switching jobs
-Working remotely or in-person
-Live off passive income or rely on 1 income (dangerous)
-Keeping track of taxes: Easiest way to lower your taxes and cost of living is to live with no state income tax.
As of Jan 2021 these are 9 state with no income tax and where many WFHomers are migrating to during the pandemic:
Alaska
Florida
Nevada
South Dakota
Texas
Washington
Wyoming
Tennessee
New Hampshire
-Cost of Living:
Housing: property taxes, maintenance, utilities, brokerage fees, maintenance, etc.
Median home price in San Francisco: $1.4m but in Cleveland: median home price: $66l
Transportation: cost and access-public or private transportation
Insurance
Gas
Repairs
Parking
Time wasted
Necessities: Food, shelter,
Dependents
Retirement Goals
-Lifestyle: Most Important Factor-how many vacations, type of clothing you wear, discretionary spending, etc.
Donât obsess over saving money itâs just about being efficient and maximizing your spending habits to create a better quality life.
Thereâs a difference between being cheap and frugal. Find your qualify of life by making decisions that are right for you no one else. Try accumulating less junk to make you more in the long run. Plus, less = more most of the time.
Globe-trotting
Thereâs no single formula for anyone to follow since everyoneâs expenses and income is different.
Our needs change and how much we want to spend depends on how satisfied we are with life.
Domestic Geoarbitrage Highlights:
Within the country
Good savings potential
Easier to execute
International
Moving internationally provides more excitement and as well as a higher potential for savings since education and health care is free in Europe. Though, it will also take more work to execute.
International Geoarbitrage Highlights:
Great savings potential
More adventurous
High probability for stress and complications
Types of People
There are typically two types of people seeking to follow geoarbitrage:
1) People looking to save for early retirement or achieve financial independence (FIRE)
2) People who are retired and want to save better to stretch out their cash
Whether or not you are looking to retire or move out of your home state to try something different, taking your lifestyle and current needs into account is a must. It isnât for everyone and some people, myself included would rather pay more to live in NYC due to some advantages you simply cannot get in a lower-cost city.
Comparing yourself to someone else is not a smart move becuase it just isnât possible. If you are unsure about moving a.k.a globetrotting/geoarbitrage try living in different cities for a few semesters as a student or months (winter preferably to really see how itâs like-not just the pretty summer months) as an employee.
The worst thing you can do is jump on a decision, pack your bags and dislike it there just to save less and end up spending more on transportation back home where you started!
Sometimes spending more for a better quality life is worth it. You only have 1 life after all so make sure you understand why you want to save and if youâll truly be happy with less than usual.
Checklist
Before any move, setting yourself up for financial success is key.
This includes:
-Have an emergency fund-6â12 months of cash on hand
-Pay off as much high interest debt as possible especially if moving to another country so it doesnât infer with the tax laws
-Invest as much money as you can to take advantage of compound interest
If you adore where you live and itâs still an expensive area, of course, you can stay there because obviously itâs for a reason.
Like everyone, you should have a realistic budget, spend below your means and have short/long term investing goals.
Geoarbitraging techniques are just to help you get into the mindset of having the option to live in a suboptimal, less expensive place if and when you choose to do so.
Happy traveling or staying but always saving!