House prices and overall expenses here in Sydney are insane!
It’s hard to save up enough money to invest and create any kind of passive income in this city… A simple beer pint in an average pub costs no less than 10 bucks. I extracted the figure below from numbeo – an interesting website that displays the cost of living across different cities around the world.
I think the $1,400 per month (excluding rent) to survive in Sydney is a quite optimistic figure, and if you want to have an “ok” life, this number would be more towards $2,500 per month (again, excluding the rent expenses).
The flip side of the coin is that Sydney is full of job and business opportunities – I’ve never seen a market like this in my whole life!
Whilst I love Sydney and it feels like home for me now, I don’t know whether it will be my city forever – it is too busy and expensive.
Throughout my Financial Independence studies and my dream of leaving the 9-5 grind as soon as possible, I came across an interest concept called “Geographical Arbitrage”, which you might want to have a look into.
It is an interesting approach that can help you to reach financial independence MUCH earlier than planned!
Geographical arbitrage — what is it?
Simply put, it’s the phenomenon of have your earnings in a strong currency and having your cost of living and expenses in a weaker one.
Ever since the COVID-19 pandemic invaded our homes, this concept has become even more feasible. Companies were forced to completely change their working arrangements and dynamics. Lockdowns closed many offices across the world and some companies have adopted the remote working arrangements permanently.
I have a friend that works in big tech company that told me that his employer is letting their employees decide on what arrangement they want: they can work remotely, be back to the office full-time, or adopt a hybrid model.
Remote work has boosted geographical arbitrage possibilities. So, why not moving to Bali and enjoying that great weather, whilst still earning in Australian dollar?
Or even moving to smaller cities in the countryside of Australia, where quality of life indexes are much higher and cost of living is considerably lower?
Over the last 2 years, people have realised many benefits associated with working from home – saving tons of hours in commuting time and transport expenses, better work-life balance, more family time, flexibility and the list goes on…
Personally, I am big fan of WFH – I tend to be much more productive when working by myself and don’t miss the office environment at all.
The benefits aren’t only limited to the workers – employers are also revisiting their head office account and realised that they can save a lot of money with this trend, whilst also increasing team’s productivity.
Simply put, remote work proved to be sustainable and feasible!
How to pull it off?
Well, the typical geographical arbitrage process would involve earning money in a strong economy, then physically moving to another place where the cost of living is much cheaper.
So if you are an employee, are you able to negotiate with your company a remote work arrangement?
Maybe you can start part-time and then progress to a full-time remote position.
Or, If you have specific skills related to the online world, such as writing, IT, website management, there’s freelancing — a modern way of earning money by proving your services online.
Freelancing was a thing long before the pandemic even existed. But when the COVID-19 virus broke in, freshly-unemployed individuals turned towards freelancing to meet their needs.
More and more people were introduced to this booming industry, making it even bigger and widely accepted. Today, there are millions of freelancers around the world and some of them already enjoy the benefits of the geographical arbitrage.
You can also set-up a drop shipping business, where would sell products online that are manufactured overseas with extremely low cost. You can add a generous profit margin on top of that and happy days.
Why harness geographical arbitrage?
The response is pretty obvious, I guess – to achieve financial independence as early as you can!
Have you done your Financial Independence and Retire Early (FIRE) calculations? If no, see this post.
Now imagine now that your FIRE Savings decreases in 50%! What does that mean?
It means that probably you will need to work for only 50% of the time than you anticipated to achieve your magic number. That is nice, isn’t it?
For example, theoretically, I am very close achieved my FIRE savings to live in another countries around the world, such as Colombia, Ukraine, Thailand, Indonesia (see below) – You can check out the cost of living in multiple cities around the world in Numbeo.
We are too young to spend most of our lives stuck in a 9-5 pattern, dedicating our most valuable asset (time) to achieve someone’s else goals. Whatever option you have to speed up your financial independence, you should have a look carefully.
Geographical arbitrage can help the FIRE process insanely!
Here it is a real example!
Let me set up a context to help you understand it better.
One of these days I hired a professional to help me in Fiveer (Fiveer is freelancing platform, where you can connect with different people around the world that provide you with different services).
This guy runs his freelance gig and lives in Pakistan. He provide services to people all across the globe.
He was helping me to sort you some stuff related to this website, and we had a call so that I could explain him what I was after.
After 20 minutes of explanation, I asked him how long has been running his freelancing business?
I was surprised with his response – he told me that left his IT job in a local company 5 years ago to freelance via multiple platforms (fiver, upwork, etc.).
Over the last few years, he has been working with clients from different countries and he makes much more money than as an employee in Pakistan.
Just out of curiosity and to have a benchmark, I asked him what was the price of a Coca-cola in Pakistan? He told me that you can buy a 350ml can for 20 cents (note in Australia, we pay around $2.50).
Wait… That is less than 10% of the Australian price!!!
This opened my eyes – it is a real example of Geographical Arbitrage in front of me!
Pakistan is not in my shortlist, but the cost of living in Ukraine, Croatia, Portugal, Brazil is significantly lower than Australia (Sydney is crazily expensive, if you are not based here).
So why keep living here in Sydney with these insane rent levels?
When I reach my FIRE savings, why not spend the summer in Odessa? Couple weeks in Lisbon, and then finally move to Florianopolis?
The world is full of opportunities and possibilities, and the internet has completely changed the game.
So even if your current work does not allow you to work remotely, just save aggressively and start to research for your favorite “low-cost” country. At the end of the day, who told you that you need a fixed base forever?
You will keep changing throughout your life, and you should try and experience different things, which includes living in different cities.
Author’s note: I do love Sydney and it is one my favourite cities in the world. If you want to be an employee or a conventional entrepreneur, I dare to say that it is the best option out there. If you have an online business though, I believe that there are many other options.
The Bottom Line is…
Leveraging geographical arbitrage was kind of tricky some years ago, as you had several physical and social barriers.
Currently, with internet and the capacity of instantly connect with people anywhere in the world, why should you stick to the same city for the rest of your life? Or if you want to stay where you are, why not applying for a remote job in US, Australia, England (or wherever you can make more money)?
I acknowledge that there are people with different dreams and wishes. They are happy to stay in the same place, work, relationship forever and there is nothing wrong with this
As for me – I wish I was like this! I used to feel bad, because a lot of people told me – “you have a great career and life, why are you unhappy?”.
After a lot of therapy sessions, I realised that moving and experiencing new things (freedom!) is part of my essence and I cannot go against it. There is nothing wrong with this neither!
If you are like me and have not reached your financial independence, you can take advantage of the current scenario, where employers are much more receptive and open for flexible working arrangements.
The company that I work for is very “old-school” and will not allow me to work remotely, unfortunately.
If you have not reached your FIRE savings yet, why not think about moving to a different city or country and speed up your financial independence process? I strongly advise you looking for places that you have always dreamt about and check its cost of living.
Did you like this post? Let me know what your thoughts about geographical arbitrage…
