Money In The World – Greener Pastures And Geoarbitrage

People, since the dawn of the barter system, have always looked for the best deal. Businesses seek the best employees for the least salary, and the best materials for the least cost. Hundreds of years ago, transportation was just not what it is today. All business was local. People rarely moved. If you had a business, you had to source your employees, materials and products within a relatively small region. It was the same for the average household. You would source your food and other supplies locally.

As time moved on, however, transportation became faster and cheaper. Businesses and individuals alike could source products, materials and even employees from all over the country. This put the clothing manufacturer in Massachusetts in direct competition with the clothing manufacturer in Texas. It brought produce from California into the grocery stores in Florida and vice versa. The “economic operating area” of each business had grown to encompass the entire country. That meant that your business or household could now find cheaper and better options from around the country. But that also meant that you as a business and you as an individual potential employee were now in competition with every other business and every other potential employee in the country. It’s a double edged sword.

Enter the age of the internet. As the internet matured, so did communications systems, and transportation networks. Now here we find ourselves with global scale opportunities, global scale sources of materials and supplies, global access to talent and, therefore, global scale competition. This is the essence of “geoarbitrage.” This handy word simply means finding a better deal for your money somewhere else in the world. You might find a better deal on the manufacturing materials you need in the next state over, or in a country on the other side of the world. You might find that star employee in the same town, or you might have them work from another country.

Geoarbitrage benefits any location that can offer more for less. And that has put some localities at a particular disadvantage. Such is the nature of competition. But this is not new. For decades already, companies have moved from one state to another for cheaper operating costs and cheaper employees. Now those moves are global. Governments around the world, recognizing that they cannot compete as well, place tariffs (essentially a tax) on certain materials and products entering the country, to try and level the playing field. Sometimes it works. But the trend itself appears to be unstoppable.

Take just the one subject of employees. If you have employees in the United States, you will pay taxes on the salaries that you pay them. But what if the kind of work you do could be done from anywhere? You could hire someone who is better educated for one quarter of the cost, have them working from another country, and not pay any taxes on their salary at all. That is a hard bargain to turn down. And THAT is the harsh reality… it is also the good news.

The nature and effect of this Geoarbitrage is that you, as an individual in the western world, must develop more unique skills to stand out and be worth your higher, western salary. But you also have an incredible amount of opportunity in that you can afford to start businesses for a lot less money by getting help from around the world. And you can sell to the whole world as well. That means niche products and services have a large enough market to be successful, while generic products become commodities, driving the prices too low to be profitable to western manufacturers. The effect, ultimately, is a plethora of niche products and services based in countries with a higher cost of living, and a plethora of cheap everyday products based in countries with a lower cost of living. For example, think about the products and services that you use. Your accountant or tax advisor is probably in your own country, but your clothes were made in another country where rent and food are cheaper.

But Geoarbitrage is not just for businesses. At some point, you might say to yourself… wouldn’t it be neat if I could have my western sized income, but a lower cost of living in another country? What if my rent and food costs were a lot lower, but my salary was the same? If your job is the kind of job that you can do from anywhere, you can make that dream a reality. In Tim Ferriss’s book, The Four Hour Work Week, he details some specific strategies for getting your employer to agree to remote work, and then moving yourself to anywhere you like, either temporarily or permanently. You might also start a business and design that business to be remote from day one.

Personal Geoarbitrage does not necessarily have to be global. You might work for a company in San Francisco where rent – and salaries – are high, while living in rural Wyoming paying next to nothing in rent. It’s the best of both worlds; high salaries and low costs of living… lots of income and very little expense.

Once you get used to that idea, you might wonder just how low you can go with your expenses. Changing locations is just the first move. The more stuff you have, the more it takes to maintain it, store it and move it. The bigger your house, the more you pay in rent or mortgage, property taxes, heating and cooling, maintenance, and so forth. More stuff will necessitate a larger house, or paying for a storage unit. Eventually, you see that less stuff means fewer expenses.

That leads us to the idea of “going liquid.” That means giving away or selling your possessions for a more minimalist or nomadic lifestyle. If everything you have can fit in a an RV, a suitcase or even a backpack, then your expense might be very small indeed. Some simply to be this minimal. Others choose a nomadic lifestyle on top of this minimalism; or rather enabled by this minimalism. When you can pick up and move to another town at a moment’s notice, you have the flexibility to truly minimize expenses and continually place yourself in whatever location offers the best deal, or the most excitement, or both. As of 2018, The RV Industry Association reported that approximately one million Americans live full time in their RVs. Most of them work in some form.

Thanks to advances in mobile communications, this nomadic lifestyle is incredibly feasible, depending on your type of work. But of course, if you don’t need to work, it is even easier. Remember our discussion about your magic number? If your expenses are this minimal, you would not need much to never have to work again. For example, if you can live on $2,000 USD per month, then just $600,000 would keep you in a monthly income of $2,000 for life (using the 4% rule).

The point is this: your stuff or your freedom. The fewer material possessions you have, the more you can take advantage of Geoarbitrage to optimize your lifestyle and your income, and minimize your expenses. That being said, your ideal life might be in one stable location with all your favorite stuff and that’s fine too. Choose that location wisely.