If this question ever crossed your mind, then you need to read this article.
When talking about how to grow wealth, we often discuss how to lower expenses or increase income. This can include cutting out unnecessary spending or starting a side hustle to make some extra cash. But one thing that isn’t often brought up is where you live. That’s right, moving your location could be the path to building wealth in a way that you never thought possible. Let’s see how.
What is ‘geoarbitrage’?
Though it has a fancy term, geoarbitrage is simply the act of moving from one place to another to lower your cost of living. By making this location change, your expenses are lowered, and in turn, your wealth grows. The term was popularized by Tim Ferriss, a self-help guru, who recognized that, in today’s global world, moving isn’t nearly as complicated as before, and people who are struggling financially can benefit from geoarbitrage in a way that previous generations could not.
The benefits
People consider geoarbitrage because of the following reasons:
- Savings – Moving to a cheaper place while keeping the same income affects growing your wealth directly.
- Taxes – It’s not just about saving money on rent and food; saving money on taxes goes a long way towards building wealth. There are certain countries and localities where taxes are very low while still being attractive places to live. By moving, you can take advantage of the taxes in your new location and make the most out of geoarbitrage.
- It’s exciting! – For some, living in a foreign country and learning a new culture is adventurous and exciting. By getting out of your comfort zone, you’ll get to see the world and experience new languages, food, and cultures in an immersive experience. To some, this is so important that the financial benefits can be minimal.
- It doesn’t have to be drastic – Geoarbitrage doesn’t necessarily mean moving from one country to another. It could be as simple as moving to a different neighborhood in the same city where housing prices are much lower. This type of micro-geoarbitrage is easier to manage and execute than a bigger life change.
Drawbacks
Geoarbitrage isn’t perfect. In fact, it might not be suitable for many people, especially those who struggle to live in new places and are comfortable in their current living situation. Here are 3 drawbacks of geoarbitrage to note:
- Culture adjustment – Whether it’s moving from the city to a more rural area or moving between countries, relocating to a new place comes with a culture adjustment that many people aren’t willing to undergo. This can also include learning a new language—a skill that can be difficult for many adults.
- Timing – Relocating isn’t easy and takes time and careful consideration to plan correctly.
- Leaving home – For some, where they live already feels like home. Leaving behind friends and family can be a tough decision, even if it’s financially beneficial. This can be especially hard on children who would likely have to leave their friends behind and adjust to a new living situation.
Remote work and geoarbitrage
While geoarbitrage was once thought of as something only reasonable for those with highly marketable skills in the job market, it’s easier today than ever. That’s because remote work has rapidly increased as the norm for many industries, making it easy to pick up and move without having to lose your job.
In 2019, 16.1% of workers in Europe were able to work from home. But the coronavirus in 2020 drastically increased this number. Because employers saw no decline in productivity, most consider allowing employees to work from home even after the global pandemic is over.
Is it worth it?
Consider these things before deciding whether geoarbitrage is suitable for you:
- Your age – The younger you are, the easier it likely is to move. As most people get older, they get more comfortable with their environment and lifestyle.
- Family – Are you single? Married with kids? The decision to move is a big one and matters not just to you but also to your family. Make sure to discuss a potential relocation with your family to see how everyone feels about the decision.
- Cost of living – How much cheaper is it to live in a new place? Is it worth the sacrifice of moving?
- Job security/market – Will you have to find a new job if you move? The financial stress of unemployment and job searching may outweigh the benefits of geoarbitrage.
- Taxes – Don’t forget to factor in taxes when looking at geoarbitrage opportunities. The cost of living in a new place might be better than your current location, but moving may not be as beneficial as you think if the taxes are higher.
- Quality of life – Besides the lower living costs, what is the quality of life you want to move to? This includes healthcare, social amenities, public transportation, pollution, and other factors. Then, compare these factors with the quality of life where you currently live. How do they compare?
A life change that could make sense
If you currently live in an expensive area and are struggling to make ends meet, geoarbitrage may be a decision to consider. This is especially true if you hold a job that would allow you to work remotely, thus keeping your income intact even after you relocate.
But geoarbitrage isn’t for everyone and is a big decision to consider. Moving your entire life isn’t like cutting one takeout meal per week. It’s something that should be carefully considered before acting upon. Even if geoarbitrage isn’t right for you today, it’s always good to know that this option is available if you need it.
Would you consider geoarbitrage? Let us know in the comments below.