Geoarbitrage: Change Locations To Retire Early & Become Financially Independent

Geoarbitrage: Change Locations To Retire Early & Become Financially Independent

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Why I'm considering geographic arbitrage in my 20s to retire in my 30s -- I'll also be able to travel the world! #financialindependence #digitalnomad #earlyretirement #fire #retireearly #geoarbitrage #geographicarbitrage

I remember getting my first paycheck and thinking,”Are you serious?! Where is the rest of it?”. That began my journey to considering geoarbitrage.

What is Geoarbitrage?

Geoarbitrage is short for geographic arbitrage.

The basic definition of geoarbitrage is taking advantage of the difference in costs between two geographic locations, while having the same kind of lifestyle.

I’d consider this to be the formula:

Pick Whichever Increase in NW is highest = Post-tax(salary + capital gains if sold + other income + non-taxed retirement accounts) – Comparable Cost of Living Expenses

I would consider living anywhere else that had a higher increase in NW for me assuming the quality of life was the same. This is with the assumption that I could work online.

The great thing about being able to work online is that you don’t have to be tied down to a physical space. Taking it to the extreme is having a business that deals with HCOL clients while living in extremely LCOL international cities.

Geoarbitrage points for Chiang Mai on NomadList
Geoarbitrage points for Chiang Mai on NomadList

If you’re curious about geoarbitrage, I’d encourage you to check out NomadList. Basically someone created free COL and culture profiles for a ton of cities, and you can search out your favorite spots. The above is a screenshot for the Chiang Mai comparison. It’s a pretty cool website.

Related: The Three Step Blueprint To Paying Off Your Student Loans In Record Time

Traveling the World is Cheaper Than Living in the US

The only reason I chose to live in NYC is because jobs in my field with their salary only exist in NYC and in the US. Otherwise, I’d have no problem living in another city and occasionally flying in to visit the big apple.

Traveling the world isn’t super costly if you’re staying in extremely LCOL places, like most of the developing world. Instead of renting cars, you bike everywhere or ride on tiny motorbikes. Good thing I’m practicing by saving money by riding my bikeshare every day! Street food is awesome and dirt cheap!

The most expensive plane tickets would be across oceans, but even if you wanted to only fly Business class flights across oceans and large distances, you could still get those flights for free by on points and miles. If you’d like to get started with free flights, check out our comparison on the Chase Sapphire cards. Here are a few examples of free (or basically free) trips below:

Trains and buses, which are much cheaper than planes, could be used for other distances. Ie, if we’re traveling in SouthEast Asia, Eastern Europe (Eurorail), or Japan (JR Pass).

It would cost me less than a month’s rent in NYC to pay for ALL of my living expenses for multiple months in some of these cities — and I’d probably have a higher quality of life! A giant plus for geoarbitrage. Good thing I convinced my partner retiring early is a great decision.

It’d be cheaper to sit on the beach in some places than live in NYC. Geoarbitrage for the win!

Housing Costs Are Different And Cheaper Elsewhere

The reason real estate is more expensive in some places is partly because people with higher salaries live in that place. Another example is a limited resource for land. SF, Manhattan, and HK are some extreme examples of real estate exploding out of control. Some of the highest savings come with geoarbitrage when you consider housing costs.

The above cities are all small islands that highly-talented people have chosen to congregate on. Oops?

Meanwhile, a palatial villa on the beach in Thailand will rent for the same price as a tiny studio in SF, Manhattan, or HK. So, which one wins? I’d argue the villa.

Find a geographic location in which your housing costs become much cheaper.

Related: 20 Free Money Tools And Resources To Fix Your Finances

Find Remote Work Or Become A Digital Nomad

Geoarbitrage allows you to become a digital nomad.
Geoarbitrage allows you to become a digital nomad.

It’s 2018. Remote work is becoming a much more common occurrence. If you’re working on a computer, is there really that much reason to work at the same desk every day? Maybe your boss would say yes, but I’d say perhaps try to find a job who would let you work remotely. Remote work can start you off on your geographic arbitrage adventure.

If you have creative or programming skills, your likelihood of being able to work from your laptop increases significantly.

There’s a lot of programming or digital freelance jobs out there, and not enough people doing high-quality work.

Plus, you’d save on dry cleaning (or extra laundry), transportation costs, etc.

Related: How To Triple Dip On Cash Back Rewards

Childcare, Health Care, And Education For Geoarbitrage

Childcare Costs

Every time I go on Twitter, someone is complaining about the cost of childcare. In NYC, it can get up to $3,000 per month for childcare. That’s for 1 kid, and that’s a cheap childcare center. No, I’m not kidding. Even in other parts of the country, it seems to only go down to $1,000 at the lowest.

If you’re working as remotely or as a digital nomad, you can always take care of your kids personally and not have to shell out those childcare prices. Geoarbitrage can help you save money on childcare. If you’re looking for the ultimate geoarbitrage move, consider taking your parents along for a while or moving back near them for a bit to allow them to spend time with their grandchildren and get extra help taking care of them.

Healthcare Costs

One of the biggest expenses in our future budget is the cost of healthcare. When we retire, there is an ACA subsidy that goes out to people whose incomes are under $100,000. Either that or one can move someplace with much cheaper healthcare costs. Ie, anywhere except for America.

The problem in this lies in revolutionary healthcare. If you contract an extremely rare disease or condition, you’re much likely to live if you get treated in a US research facility, but we’ll cross that bridge when we get there.

Education Costs

In larger cities with too many kids, there are increasing expenses associated with trying to get your child into the best schools. Race wars for standardized testing occur and it might be in your best interest to move to a city that has great public schools, at a much lower cost to you!

Related: The Step By Step Guide To Where Your Money Should Be Invested

Taxes Are Your Biggest Expense

My First Experience With Taxes

The firs time I got paid, co-workers in my hiring year started messaging each other trying to figure out what was wrong with our paycheck.  Were the taxes really that high? Oh, yes. I had city, state, federal, FICA, my FSA contribution, healthcare costs, and 401k taken out of it. Dang.

I hadn’t ever really thought about taxes. After all, I’ve never had to pay them before that day. In college, I earned enough money to pay some small amount of taxes on it, but it wasn’t a noticeable amount. Every year I filed my taxes, but always got a small refund.

My university provided free healthcare to me. Students are exempt from paying FICA tax if working on campus (I only learned this AFTER college because I as mildly confused at why I had to start paying this all of a sudden after college). Oh, and we didn’t have 401ks at my college job, so I couldn’t really put anything in there.

Tax Arbitrage Is A Big Factor In Geographic Arbitrage

Two years into work I stumbled onto the Foreign Earned Income Exclusion (FEIE) — a little tax clause that was pretty interesting. I realized it was a gold mine if you could figure out how to make money online. Plus, it meant I could move out of the insane HCOL city that is NYC and save a ton more money too. It made the thought of Geoarbitrage all the sweeter. So, I stopped my growth side hustles that required me to be physically at a place and instead focused on the world that is digital real estate.

Living in the US comes with taxes as a large expense. Living in NYC especially — yet the trains don’t run on time, the streets are dirty, and there is so much waste in bureaucracy.

If you consider taxes an expense (which I believe you should), then I’m almost certain they’d be your biggest expense. Even if your tax rate is low at 20 percent (This includes all taxes you pay. FICA should be at least ~10 percent, state + city + federal should hike that up to 20 percent total even if you’re making minimum wage).

But it seems no one considers taxes an expense in the FIRE world. If you look at a business balance sheet, they absolutely consider it to be an expense.

That’s probably why big corporations try to be domiciled in certain Caribbean islands or other countries with low or no taxes. Here’s looking at you Ireland! Let’s not even get into the tax rebates Amazon will get for building it’s new headquarters or how some companies get 10 years of tax-free earnings in NYC. Never mind the lucrative tax loophole that is selling licensing across corporations domiciled in different countries.

Those companies that want a higher profit? They figure out how to keep all else the same, but pay less taxes legally.

Do you personally want to keep more money net? Same thing. Consider moving somewhere where the taxes and COL are cheaper but you’re still above breakeven.

Related: How To Monetize Your Life By Doing Things You Already Do

FEIE – The Magic Bullet

That’s where FEIE comes into play. LCOL + tax-free up to $100k? The equivalent of that while living in NYC if we’re doing a breakeven of taxes + expenses in NYC vs geoarbitraged place is probably $250k per person a year — I haven’t done the exact math, that’s just eyeballing.

For 2018, the FEIE allows you to exclude up to $104,100. This number changes every year with inflation. Oh, sweet baby.

You’re allowed that exclusion if you generate income while out of the US for 330 days a year. You still get to stay in the US for 35 days a year, so you can come back and visit family or friends.

Plus, you’d probably work less and wouldn’t be as stressed. You’d also get to experience new food and culture when you’re young and in your 20s. It’s really hard to put a price on that. I don’t know about you, but I feel like the younger I am, the better time it is for me to travel the world.

I’m not saying everyone should do this. If my life had gone a different way, I wouldn’t ever consider this. If I older and had kids, a ton of friends staying in the city, or a serious partner who needed to stay in the city forever I wouldn’t consider it. But everyone is different, and I’m just telling you a little bit about potential options.

The Central Park Castle is gorgeous, but it’s not enough to keep me here.

Related: 50 Self Development and Growth Books That Are Integral To Life

All My Friends Are Leaving NYC Anyway

I don’t have family here, nor do I have kids. I’m 25. I’ve always wanted to travel the world, but being in corporate you can only really do it a few weeks a year. If I wanted a few months or years of travel, I’d have to be location independent or wait until I’m entirely FIRE. Working on the road doesn’t seem like a bad idea.

I have a close-knit group of friends that I speak to every day/week and they will all probably be gone in the next few years. One is 32 and a year until he FIREs and will move to an LCOL city. Two more my age are going to work in Europe in a few years, one is going away to get her MBA soon, and another is looking to make partner at her firm, so I never see her much anyway :(.

A number have already moved away from NYC, just a few years after graduating! NYC is really the city of high turnover and ephemeral people.

Geoarbitrage is easiest when your best friends move away. If you’re on the road and visiting new cultures, you can always meet up with them where they move to or just when you guys are on vacation.

Related: The Thousands I’ve Paid Due To The Knowledge Tax – Personal Finance Is Not Common Sense

I Love Food and Travel, Not Physical Things

Earlier this year, a few bloggers came out with saying they wouldn’t spend any money on non-consumables this year. I thought it was pretty interesting and went along with it. It’s been 3 months into the year and all I’ve spent on non-consumables is some chalkboard sticker paper and some chalk markers — and I really haven’t felt the need to buy anything else. The blog and other side hustles keep me busy and I don’t feel the need for more material things.

Food, on the other hand, continues to keep me in its grasp. Though most of my meals are homemade, I can’t help but feel the pull towards new tasty restaurants. I go to some cool food and experience events through Yelp for free, but I still spend money on food on date nights and special occasions. Travel has me in its lure as well — I love to surf blogs and read about travel hacking and look at gorgeous places in other countries.

Those authentic ethnic dishes you rarely find are super cheap in their respective home countries.

Related: 50 Budget Friendly Summer Bucket List Activities

Life Is Short – Find Your Happiness

These past two weeks have been rough, and probably just the past year in general. Hopefully, I’m not making a rash decision, but these geoarbitrage travel ideas have been brewing for quite a while.

Two people I knew, one an acquaintance, and the other a close friend when I was in elementary school were unhappy and chose to end their life. I couldn’t believe it, as they were some of the happiest people I knew.

Last year, an auntie died from cancer in her 60s, and another family member was diagnosed with something potentially terminal.

Life is short. You just never know. You shouldn’t delay happiness for too long if you’re not sure you can’t handle it.

Spend a little more if it makes you happy. Quit your job. Get a new job. Move. Do something to make yourself happy.

I want to find my own happiness and not be chained to a desk with golden handcuffs in a few years. If there’s a more happy path to FIRE that is almost the same length in time period, why not take it?

I’d love to visit the Sagano forest every day for a while. It’s so calming there.

What If I Hate Traveling For Extended Periods of Time?

It’s possible I love being on vacation and experiencing a culture for a few weeks at a time, but will hate it if we keep moving around.

I’d like to have a main central hub in a city, and branch out with experiencing cities for a few weeks at a time. For example, if we were visiting Asia, we could settle down in Chiang Mai, and then go to places like Koh Samui, Palau, the other Pacific islands (I’m an avid scuba diver) when I’m in a diving mood and to other cities when I’m in a mood to want to experience different cultures.

If we’re in Eastern Europe, Montenegro seems awesome and cheap in a historical city. Other Eastern European cities are close-by to visit.

In 2017, we flew to 8 different places and still wanted more time to explore the world. I haven’t done a write-up of all the places, but I did do one on the Japan trip.

What If I Still Want To See Expensive Places?

By travel hacking in the most efficient way, we’d save our points and miles for HCOL cities while paying cash in cheap places. We’d probably live in airbnbs for the cheaper places and then redeem hotel stays via points in the most expensive cities. We could probably manage minimum spend for at least 3-4 HCOL experiences for a week or so at a time per year.

Being self-employed would allow you to pay taxes quarterly. If you do so on a credit card, it’s counted towards minimum spend, which is an awesome deal even with the 3 percent surcharge that is levied. The value of the credit card sign-up bonus is always so much more than if you had to pay with a 3 percent credit card surcharge to meet the minimum spend.

Related: 6 Common Things You’re Doing WRONG With Your 401k and How To Fix It For Free!

What Happens If I Still Want A Job When I’m Done?

I’d love a location independent job, and this entire plan hinges on if I can figure out one. I’d never go on the road without a secure plan.

On the off hand, I don’t like living around the world, I can always come back to the US and put down roots somewhere. My side income would at least cover monthly expenses, and getting hired *somewhere* wouldn’t be that difficult. Perhaps I couldn’t make the exact same salary as prior, but it’s not the end of the world.

What do you guys think? Would you consider traveling the world if you could make an income online? Would you even want to travel the world for super extended periods?

**Any accountants know if you can claim FEIE and standard deduction? Couldn’t find anything on it in Google :(.

Author: Olivia

Olivia worked in finance and wants you to learn the secrets of financial independence. She believes there are so many ways to monetize your life and make money doing the things you're already doing because so many companies offer free money.

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35 thoughts on “Geoarbitrage: Change Locations To Retire Early & Become Financially Independent

  1. You’ve convinced me, I’m heading off to live in a LCOL country…. in about 10 years. Once our son is gone to college, I’m outta here. 🙂
    Life is pretty good for us now so there is no urgency to go, but I’d like to see more of the world. For now, we’ll just travel once a year. My plan is to live in Thailand and travel around Asia for a few years. Then live in South American and see that region for a few years. After that, probably head back to the US to be closer to families.

    Sorry to hear about your friends.

    1. Haha, if I had kids, geoarbitrage would probably not be one of the things I’d be willing to do! Chasing a kid around in an unknown land seems too stressful! Your life does seem pretty good :). The “hub” plan for visiting a few countries in a certain continent at a time sounds like a great plan!

      Thank you.

  2. I’ve been thinking about that too. I keep wanting to go back to Japan for longer and eat all the glorious food to ‘ get it out of my system’ so I stop itching to go back to eat more toro sushi and ramen. Ideally I’d like to travel for 4-6 months in a year and work the rest. That makes work kinda tricky because my day job really requires me to be there and I like it well enough. But I always feel like there’s a travel itch I need to scratch. Waiting til full FI is too long. Maybe I’ll feel confident enough to ask for extended time off in the near future. It’s just that my work treats ppl who take longer LOAs pretty crap once they come back. Ah decisions. >·<

    1. Here’s to a working and money making blog one day :D. Then you can take your show on the road for a while! Ahhh, I love Japan and the cuisine there so much. I’m going to miss eating at Jiro’s place because I’m worried he’ll retire soon and I’ll never have gotten to eat there!

      Trying to build up my arsenal of remote work skills. We shall see :).

  3. I don’t have much of the travel bug or non consumer bug either. I’m a roots kind of person. The biggest bug is my lust for food. You’re right that life is too short sometimes and you have to find a balance. Someone said 2029 was too far away to 🔥 and I’m like…well there’s literally not very much that’s stopping time from moving forward…so….I rather plan than get caught without any plans.

    1. That’s great :)! I figure this will knock out my travel bug and save a ton as well! It’s always great to have a plan! Don’t listen to those people!

  4. I currently live in SF which you would guess is like NYC. We thought of moving to LCOL areas around the US since it’s so expensive to buy a home around here and we could have bought a home already if we lived to LCOL area but we both have family here and my wife doesn’t like the thought of moving away from the Bay Area.
    As of traveling, for now we would like to do the RV lifestyle for about a month or two around the country. It would so great to check out all the sites this country has.
    Traveling abroad like Europe and Asia is also something we’ll keep an eye on down the line.

    1. Very much like NYC! I think if we had a kid, I wouldn’t do geoarbitrage either. It’s hard to do it with a tiny human, haha. Hopefully I can do it in my 20s and get the travel bug out of my system (but still go on a long vacation every year!).

      The RV lifestyle seems very cool. Michelle seems to enjoy it very much!

  5. Great post. I’ve been fortunate to have traveled all over the world so I’ve had my adventures and seen many places. But I haven’t lived outside the US yet. I would definitely consider it, but there’s also the option of GeoArbitrage within the US. There are so many cheaper places to live than NY or Washington DC, and you can still have an amazing quality of life.

    1. True, geoarb within the US is what we’re doing when we finally retire and settle down. It’s a wonder why some places have state/city taxes while others don’t! Then there’s also arbing property tax! I just figured it’d be cheaper to do geoarb internationally in our 20s and still save a ton with the FEIE clause! Plus, it could get our travel bug out for a few years and gain perspective!

  6. It sounds like the biggest sticking point is that your career is centered on the big cities. But if you aren’t truly happy and fulfilled in that career, I’d probably leave before hitting full FI. You’re the kind of person to hustle and make things happen, and I could see Barista FI being a great option for you (and all the sooner if you’re happy to leave the HCOL area – though you’ll be leaving the food too!)

    1. True, the job only really exists in HCOL cities! And the food is so good:D. Hopefully I can hustle on the internet so I can be location independent :D. Planning on traveling for a few years then moving to a Lower COL city.

  7. One of my overarching philosophies in life is to not be a slave to anything: the bank, my location, etc.

    Producing passive income (or active income) online, real estate, etc. is my goal, but it’s taking a lot of work to get there.

    Geographic arbitrage is awesome and something I think about a lot. Northern Minnesota you can get a 3500 sq ft house for $150k, whereas in the Twin Cities, that would cost around $500k

    1. I agree, active income via a blog or digital real estate doesn’t seem terrible because you get to do it at home with freedom!

      Everything worth doing will take work:). You’ll get there!

      It’s so weird how the same thing costs such a different amount!

  8. I have never heard of FEIE. It sounds very interesting and something we all can take advantage of, not just for those big corporation. We currently live in ☀️ Southern California, which I consider HCOL. I frequently thinking about moving to a LCOL but still within the US since we have 2 young daughters. Any suggestions?

    1. I’ve considered Houston, because there are large houses for much cheaper. You should look into the 7 states + 5 territories that don’t have state/city income tax. Some of these places have higher property taxes, but if the houses are cheaper than Cali, you could consider it :).

      Also, Texas has a property tax clause that allows you not to pay property taxes if you’re keeping animals on the land.

  9. My husband and I discussed leaving the US as soon as we reach FIRE. However, we couldn’t agree on a place. We have to think about our aging parents and future children. One of the top places that husband brought up is Vietnam but I wouldn’t want to raise my children there. I think eventually we will settle somewhere in California.

    1. Very true, geography is important! Hopefully Musk’s BFR works soon so it’ll only take an hour to travel between Asia and the US. California sounds very nice :).

  10. I was interested in geoarbitrage in my twenties but I had to make as much money as possible from 25-29 to pay off debt that I had, my husband had, and debts owed to our parents. If I didn’t have those obligations, I would have done it. Now I feel it’s a trade off between waiting to have kids so we can travel or having kids now when we’re in a better position biologically and energy wise.

    1. Hard choices to make! Maybe you guys can Barista FI and travel a little every year more than other people do for a fun tradeoff?

  11. I’m excited for your new adventure. I spent two summers abroad during college, and I have a feeling you’ll enjoy geo-arbitrage or slow travel. It’s much more rewarding than a short vacation for me.
    And if it doesn’t come back you can always return and find a traditional job!

    1. Hi! Not yet decided to go, but thinking of doing it in the next few years! And yes, I can always find a new job. The experience overseas would be incredible! Inspiration comes from understanding other perspectives :).

  12. do it while you’re young if you’re going to try it. my 20’s were 20 years ago and travel by air has seemed like more of a pain in the ass for us as time has passed. that might not be true for everyone but i know tastes and preferences can change. that tempurpedic bed in our own house is a siren song.

    1. Oh man, it’s true, my bed is super comfy! But I love food and culture too, and hopefully we’ll pick some comfy places to live:).

  13. Nice post, Olivia. I didn’t know about the FEIE before, so thanks for bringing that up!

    I just got back from an extended trip in Europe and re-ignited my own travel bug. Now all I can think about is moving to Spain someday. I started to look at apartments just for kicks, and 700-1000EUR/month for a 2 bed/2 bath sounds pretty great compared to NYC!

    Great comments on finding balance as well. It’s a simple concept, but I feel like a lot of people don’t take the time to think about it. If you’re not happy, make a change. We have more power than we realize sometimes.

    1. Of course! That sounds incredible compared to here. There’s def more to life than finance! Glad we recognized it before the golden handcuffs came out!

  14. Living in NYC is the biggest obstacle for me to reach FIRE. I grew up in NYC and have family/friends here. Plus being married with 2 little kids, it makes the move even tougher. I often daydream about a lower cost area though…mainly housing prices…it’s ridiculous here!

    1. Dang, the family and friends ties will make it hard to move! Maybe consider moving to the NYC suburbs? They are still kind pricey though :/.

      1. I’m in Queens and yea, still expensive here! Long Island has areas with slightly cheaper but still expensive houses…no city income tax, but crazy high property taxes!

  15. I’ve been living in Thailand for the past seven years, and the quality of life is soooo much higher here than back home in London. I’d definitely carry on living out here or somewhere similar if I didn’t miss my friends and family back home so much.

    1. That’s great to hear! Definitely want to travel abroad for 1-2 years when I’m closer to 30 and be able to leverage the LCOL but awesome city there!

  16. Great article.

    I’m not an accountant but I have been successfully taking the FEIE and the standard deduction for 13 years now. I moved from Colorado to the Philippines in 2006 and really haven’t looked back. Paid off $40k in credit card debt, bought a car (cash) bought and refurbed a house, now all paid for0 and have lived well.

    Thailand is a great country, I actually lived there several years back in my younger days, but the Philippines is Engish-speaking and WAY more friendly to foreigner expats in terms of visas and other permission-type things.

    Now that I am well into my 70’s I am thinking hard about moving back to the USA, (Medicare and medical insurance issues). I encourage everyone reading this to make the move when you’re young. Don’t wait for conventional, over 65 retirement, that might be too late. Godspeed.

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