New York. San Francisco. Honolulu.
Out of all the cities in the United States, these three often get named as having the highest cost of living. It takes more money to live in them than it does anywhere else.
Every year, more and more people are moving out of these high-cost areas. They’re choosing to relocate to lower cost of living cities and using geoarbitrage to save more money. Often, people find that going someplace new not only helps them reach their financial goals faster, they’re able to live richer and fuller lives, too!
What Is Geoarbitrage?
You may not realize it, but you use arbitrage all the time. It occurs when you pass up one gas station in favor of another that has a lower price or when you choose one index fund instead of another because its total expense ratio is lower.
Geoarbitrage is made up of two parts; geo and arbitrage. Geo is short for geography or location and arbitrage is taking advantage of price differences between two or more markets. Together, geoarbitrage is temporarily or permanently moving somewhere that has a lower cost of living than you do now. It allows you to maintain a similar lifestyle, but for a fraction of the cost!
Most people use geoarbitrage as a way to reduce their monthly expenses while keeping their income constant. This helps them produce a larger savings ratio and gives them more capital to invest. Ultimately, it reduces the amount of time and money they need to achieve their goals and financial freedom!
Geoarbitrage isn’t just for those in the workforce either. Many retirees use it, too. Often they’re able to make their dollars stretch further by moving to a new city or country. They’re able to live a fuller life and have a happier retirement for less than they would have otherwise.
Most of the time geoarbitrage requires that you move and you have the option of going someplace domestic or international.
Domestic Geoarbitrage
Domestic refers to intra-national relocation. It can involve something as simple as moving to a less expensive neighborhood within your town or relocating to an entirely different city or state.
As more companies allow their employees to work from home, more people are moving. With this new freedom, they’re relocating and lowering their monthly expenses. In some instances, they’re eliminating the burden of state income tax from their budgets altogether, too!
These moves aren’t only helping people to spend less and save more money, but in many cases, they’re also enjoying a better lifestyle. They’re moving closer to their favorite people and activities which makes them happier and improves their overall well-being!
International Geoarbitrage
International geoarbitrage utilizes price differences offered in different parts of the world. Often, people move from a high-cost country to a low-cost one where they can work remotely or become location-independent entrepreneurs.
Most of these people choose to earn money in a strong currency, like the dollar, pound, or euro. Then, they spend it somewhere less expensive where their incomes stretch further.
Many popular places for international geoarbitrage are also beautiful locations. You can go to places in Southeast Asia or Central America where you can soak up the sun on white-sand beaches and pursue your goals at the same time!
For example, a few of my college friends went to medical school in the Caribbean. They received great educations and became US-Accredited Doctors, all while living in paradise and paying a fraction of the amount it cost their peers!
Living in a foreign country also gives you the opportunity to have life-changing experiences. It immerses you into cultures in a way that you don’t get from a short vacation. You’re able to meet so many new people and get introduced to new ways of life which allows you to see things from different perspectives. This helps you to grow and it may even shift your view of the world and how it all works.
Before you make an international move, there are many factors to consider. A few of them are:
- Language
- Political Stability
- Crime Rate
- Weather
- Citizenship and Residency Requirements
- Expat Community
- Quality of Life
How Geoarbitrage Lowers Your Cost Of Living
Relocating to a lower cost of living area can make you feel like everything is on sale. Especially, especially when it comes to your top expenses!
The price of housing varies across most cities and states, let alone the world. For example, an article on House Beautiful found that $200k buys you 975 square feet in Austin, TX or about 300 ft in San Diego, CA. But, in the Dominican Republic, you could get a 2,000+ sq ft house that also just happens to be steps away from the ocean!
If you plan to use geoarbitrage as part of your financial strategy, you may be able to make money on your current home, too. You could use a residential property management company to rent it out or in some cases, sell it for a 100% tax-free gain!
Geoarbitrage also allows many people to lower their tax bills. By moving, they’re able to go to counties, cities, and states that have lower tax rates or none at all! The states where you won’t pay state income tax are Alaska, Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming.
An international move can reduce your tax bill, too. Many people that live abroad take advantage of the Foreign Earned Income Tax Exclusion (FEIE) which can lower your tax burden while you live in paradise!
You don’t have to relocate to profit from geoarbitrage, either. You can do it from the comfort of your home by hiring a virtual assistant or freelancer in a different part of the country or world. You’ll help them by paying a fair wage and they can help you make phone calls, schedule appointments, and ultimately grow your business!
How To Choose Where To Geoarbitrage
The list of places you can move is endless. More than likely though, there are only a few places that will allow you to live your ideal lifestyle and save money at the same time!
Start by determining the way you want to live. Think about the people you’ll surround yourself with, the activities you’ll engage in, and your quality of life. With this information, you can explore your options and determine how the cost of each fits into your monthly budget.
Use the cost of living calculators below. They’ll help you compare your current cost of living with the locations you’re interested in moving to.
- NerdWallet’s Cost of Living Calculator
- Numbeo – Gives estimates on local meals, entertainment, and rent costs
- The Earth Awaits – Search for cities by population, crime, and pollution levels
Relocating is often one of the most stressful events that people go through. It’s an experience that’s full of uncertainties, challenges, and worries.
To avoid making any lasting mistakes, test out your new location and lifestyle before you make a permanent change. Try visiting the neighborhood for an extended period, connecting with the locals, and being in a new environment. All of these will help you decide if this new place and way of life will be a good fit for you.
Most people’s initial attraction to geoarbitrage is that it’s a great way to reduce your burn rate. By moving, you can save more money and live out your dreams faster. But, once you go you’ll realize that the financial gain isn’t the true benefit. It’s expanding your mind, getting out of your comfort zone, and having unforgettable life experiences!
Where is your dream geoarbitrage location? Comment below.
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