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Would you consider Geoarbitrage as an option for achieving financial freedom? Well if you’re wondering how then read this exhaustive piece to find out more.
How to Use Geoarbitrage to Unlock Financial Freedom
Financial freedom is the desire of every individual not only in the US but all over the world. Every person wants to reach a point in life where they can afford most of the life’s goodies with less strain and hassle.
With the rising cost of living in most cities in the United States, geoarbitrage becomes an option to save some cost for those people willing to risk it.
The cost of living is rising with each passing day. The amount of money people use to acquire the fundamentals of life in some parts of the world and particularly in various states and cities across the US is just excessive.
The costs when compared to prices in other cities around the world, seems way too expensive.
If someone were to relocate, they would save a considerable amount. When you manage your money through free apps like Personal Capital, it’s pretty easy to track all your investments, cash flow and earnings now matter the location.
With the rise of freelancing websites, you can actually work all over the world and still get paid in dollars.
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So, before we delve any further, lets first understand what is geoarbitrage and the concept behind it.
What is Geoarbitrage?
Geoarbitrage is the process by which an individual relocates from a city or a country with a high cost of living, to go live in a lower cost area.
The relocation may be permanent or temporary. Let’s say for a few months or years. Whichever the case, the main aim of geoarbitrage is to take advantage of the lower costs of living in the other city or country.
Factors that Determine the Cost of Living in an Area
When talking about low or high-cost living, various factors influence it and the basis under which it is founded.
Generally, the cost of living is determined by the general cost of being able to live in a city or a country.
The main factors that influence the cost of living in a particular area include:
Cost of Food
The first thing we would want to look at is the average cost of food. This is the essential commodity that makes us work so hard to acquire it.
For example, if you live in San Francisco where the average cost of food for a family of four is $750 per month, moving to another city/country where you can spend $400 for the same, seems reasonable.
Many countries around the world enjoy much cheaper food costs and finding the right place isn’t a complicated task. A good example is the cost of food in Argentina.
Current estimates as of 2019 show that a family of four in Argentina can use an average of $130 per month. When you get the difference from that in San Francisco, you will get ($750 – $130) = $620.
With this kind of saving, one can walk into financial freedom before even knowing it.
Cost of Housing
When it comes to housing, the cost of owning a home or the monthly rent varies significantly in different cities.
For example, Kiplinger indicates that the average cost of a house may range between $75, 000 in Youngstown, OH, and as high as $1,000,000 in San Jose, California.
Also, according to the BEA (Bureau of Economic Analysis), the average cost of housing per month in San Jose, CA, is around $2,522 while in a city like Baltimore-Columbia-Towson, MD, the average housing cost is approximately $1,325 per month.
The enormous difference in the prices of housing in these towns indicates a big difference in the amounts someone can save during their productive/working years.
When aiming for early retirement through geoarbitrage, the cost of housing is a significant factor to consider, and it can have a substantial effect on your financial freedom.
If for example, you take the difference between San Jose and Baltimore ($2,522 – $1,325) =$1,197 per month. If you save this amount for ten years, you will have saved $1,197 *120 = $143,640.
This will significantly accelerate your journey towards financial freedom.
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Since geographic arbitrage typically relates to relocating to lower the cost of living to help make your earnings go up further, we cannot ignore its effect.
If you can earn more money in the big cities but use it in a lower cost city or country, this would give you a significant boost toward attaining early retirement.
A good example is where you can work remotely and earn your money in US dollars, but spend the money in a place like Thailand or Argentina. The difference in the cost of living between the two countries is immense and can make a big difference for you.
If you are that person who doesn’t fear to relocate, then this might be the best thing for you.
With the emerging change in working trends and the increase of work-at-home opportunities, achieving this is not a challenge anymore.
This shows that it is possible to earn from the big city companies, working remotely from a location of your choice.
Taxes and Insurance
Different cities and countries impose varying taxes at different levels, and as tax is a significant contributor to the cost of living, one should choose wisely on where to settle.
Geoarbitrage means that you have the choice and power to live in a place with fewer taxes but still earn your money elsewhere. Property tax, income tax, sales tax and more, all add to the burden of the increased cost of living.
The higher the taxes, the greater will be your monthly expenses.
Different forms of taxes will affect different people in various stages of life and its crucial to identify which ones affect you.
For example, the retired individuals won’t be affected by the income tax while the young working people will.
For the working class, moving to a place with lower taxes can accelerate your journey to financial independence.
In regards to insurance, owning and operating a car in some cities is so much expensive. Since a vehicle in most cities in the US is a basic need, the high cost of insurance will add to your bills.
A research done by ValuePenguin indicates that the average car insurance cost in the US is $125 a month. Getting a place that will slash this cost of your shoulders sounds like a great idea.
Many states in the US have a very high cost of childcare unlike other parts of the world. The average cost of childcare in some cities in the US is around $1,000 – $3,000 per month, according to BEA.
This cost is extremely high as compared to other places like Koh Pha Ngan, Thailand where the total average cost of living is around $750 per month.
Therefore, if you can earn in San Francisco for example and live in Thailand, the difference in the cost of living would be substantial.
Although many may think that moving to low-cost areas means a low quality of living, this is necessarily not the case. There are so many countries where the cost of living is much smaller but the standards of living much better than that in the big cities.
For example, there are many excellent public schools in some areas that can save you considerable amounts instead of using private schools.
Some Best Countries for Geographic Arbitrage
In this section, we want to explore some of the best places where a person relocating from the US, seeking lower costs of living can go.
There are numerous countries around the globe which will offer similar or higher standards of living as that in the US but at a much lower cost.
Here are some of these places:
Living in Thailand can be considerably less costly than living in most cities in the US. The average cost of living in any part of Thailand ranges between $600 to $3,000 per person.
In the US, this amount can only cater for some expenses like child care which may go up to $3000 in some cities.
With this low cost of living, you can increase your investment portfolio through the savings and achieve your financial freedom much earlier in life.
While living in a place like Chiang Mai, Thailand, the average cost of living will range between $600 to $1800 for a person, and it’s among the cheapest cities in Thailand with excellent standards of living.
Bangkok is one of the most expensive places to live in Thailand, and its average cost can go up to around $3,000 or more.
If you compare this to a city like Baltimore-Columbia-Towson, MD where the average cost is about $7,378, you realize that you can still save a large amount of cash per month.
All this money can be channeled to your investments thus improving your rate of attaining financial freedom.
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Another excellent place for geographic arbitrage is the Philippines. Although some places in this country may have housing costs as high as those in the US, most other towns and islands will cost much cheaper.
If you are thinking of geoarbitrage as an option to your financial independence, then the Philippines fits you well. For starters, you can get a decent one-bedroom apartment for a cost of between $150 to $300 a month.
This is way cheaper than most apartment costs in the US which on average will cost between $700 to $1300.
In terms of food and beverages, the Philippines have numerous street markets, full-service, and grocery stores where one can get fresh food products.
Things like vegetables, rice, chicken, eggs, and seafood are relatively cheap as they are readily available. Cheese and milk can be a bit expensive in comparison, as they are much harder to find.
For those who love to take a bottle or two, beer and cigarettes are relatively cheap as they are free from heavy sin taxes.
Even for the high-quality imported beers, the average cost is around $1.81 for a bottle and as little as $1.27, and you have your packet of Marlboro cigarettes.
Prague, Czech Republic
For those who love ancient sites and architecture, Prague is just the right city for them. Prague is one of the best places for geographic arbitrage, especially for young and adventurous people.
The city is full of architectural, historical buildings that will captivate the attention of many, stocked with modern amenities that make life more enjoyable.
The cost of living in Prague is a bit expensive than some other European cities, but it still cheaper to live there than to live in the US.
A one-bedroom house can go for up to $750 per month which is still cheaper than the $132,500 in Baltimore-Columbia.
The only downside of living in Prague is that you will have to leave for a minimum of 180 days every year, due to the effect of the Schengen visa.
If you are a digital nomad, then Romania can be an ideal place for you. The country is among countries that enjoy the fastest internet speeds around the globe.
Romania is a combination of modern and historical architecture and the young people there are also fluent in English.
For just $400, you can get quite a perfect one-bedroom apartment in the city. Also, you can comfortably get a good meal for only $4 or so.
For those who love fun, the town has a luxurious historical architectural touch, urban public parks and a low crime rate also characterizes it.
Geographical arbitrage is an excellent way of attaining financial independence (FI) for those people who don’t fear the challenge of relocating.
A famous financial freedom quote by Robert Kiyosaki says, “Financial freedom is freedom from fear.”
This strategy aims at lowering the average cost of living while still enjoying the same quality of living or even better. Building a saving habit is one of the best ways millionaires gain financial freedom.
Although many people would argue that instead of moving, one should try to earn more and maintain their location, relocating can be more beneficial.
All in all, the strategy aims at increasing the level of one’s savings which will in turn increase investment and finally lead to financial freedom. You can link geoarbitrage with financial independence, retire early and enjoy your life.
Early retirement is true freedom.
Nevertheless, Geoarbitrage may not be for everyone. People with large families, those with jobs that don’t allow them to move, people who hate traveling and more can find it difficult.
The process requires a considerable amount of sacrifice when you have to leave behind your loved ones, friends, and things that you love.
Conclusion on Geoarbitrage
There are many ways through which you can unlock financial freedom. However, I have always considered geoarbitrage, combined with increased investment, as the best way to reach there.
If you are tired of paying those hefty expenses every month and wish to change this, then you should try this method. I believe this article gives you sufficient information on things to consider when relocating and where to.
Can you relocate to save on the cost of living? Let me know about your views on geoarbitrage in the comments section.
Other Related Resources
- Dividend Investing Your Way to Financial Freedom: Live Off Dividends
- Great Tips for Investing In Wine: Alternative Wealth Creation
- Why Do Americans Love to be Car Poor?
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