Many people dream of retiring early, but the reality for most people is it’s near impossible to do if you’re living paycheck to paycheck. Even if you have a comfortable income, if your living expenses are not low enough for you to save at least 30% of your income, it will take you at least 30 years to retire.
The problem is in the US, Canada, Western Europe, and most other developed countries, the average cost of just housing, food, transportation, taxes, and healthcare is $ 3,156 per month. Just those five basic expenses are MORE than the $2,998 median individual income in the United States. We haven’t even added any money for childcare or other necessities, much less anything for discretionary entertainment or fun.
What is the solution? What if I told you that you could potentially double your savings rate overnight? It sounds like a get “Get-Rich-Quick-Scam,” but it isn’t. Jumping on a plane to live in another country can literally cut your cost of living by 50% to 80% versus living in the US. That’s isn’t a scam; that is the power of geographic arbitrage.
Geographic arbitrage is a fancy term for a simple subject.
What is Geographic Arbitrage?
Geographic arbitrage (sometimes referred to as geoarbitrage) is taking advantage of differences in living costs between countries to lower the cost of living and increase savings.
Ignore the fancy terminology; the concept simply means that living expenses (housing, food, health care, etc.) are much cheaper outside the United States.
How does Geographic Arbitrage save you money?
Let’s look at three of the essential living expenses we discussed above: housing, food, and healthcare. Now compare your expenses to the real-life examples below:
Housing $530 per month– I am currently using geographic arbitrage to live in a furnished 2-bedroom apartment 100 yards from the beach in Split, Croatia. A similar apartment in an average cost city in the US would be $2000. Double or quadruple that price if you wanted to be 100 yards from a beach.
Housing in Croatia is not an anomaly. Split is actually the most expensive rent I’ve paid in several years. Here are some examples of average rent from around the world.
Food $185 per month– Here is an example of an expat in Merida, Mexico, who only spends $185 a month on food. She cooks most meals with fresh produce from local farmer’s markets, but she still only pays $3-$4 on a filling Mexican meal when she wants to go out.
Healthcare $40 per month– The US has the most expensive healthcare system in the world. The average cost of health insurance for someone in the US is $750 per month. Here is a Canadian expat living in Taipei, Taiwan, who only pays $40 per month. How good is the healthcare system in Taiwan? It was ranked #1 in the world three years in a row.
Conclusion: Should you consider living abroad? Are you a digital nomad or remote worker? Can you be? Geo arbitrage is tailor-fit for people who can earn money in a strong currency (USD, EUR, or GBP), but live in a low-cost country like Vietnam, Bulgaria, or Turkey.
But does that mean you should pack up and move to a foreign country? If you want to put your retirement on easy-mode, the answer is yes.
If you want to live a free and easy retirement, you want to make sure you are making the most of your money and not spending more money than you need to in the process. One way of doing this is to keep your costs as low as possible by living an expat life, enjoying the benefits of living in a foreign country while paying less for it.
Author:
This post has been written by Marco Sison, Retirement Coach with Nomadic FIRE. He is an expert in all things retirement-related, particularly in the US. If you need to get control of your finances for retirement pop and have a read of his site.
