Geo Arbitrage: Saving Money (Unexpectedly..)

Geo arbitrage, or geographical arbitrage if you want to be entirely correct, is a well-known method of increasing your ability to save money.

As such you will find the usual plethora of posts extolling its virtues, especially for those seeking early retirement or financial freedom.

However, I have zero intention of devoting a blog post to repeating what others have already said. What would be the point of that? 

On this blog, as you poor readers know, I like to only write about things I’ve actually done, been, ate or drank. And at least hope I have something different to offer based on the experience.

Therefore today I’m going to ramble on about some unexpected benefits of using geo arbitrage on our own journey to financial freedom

These reasons weren’t why we did it at the time. But in hindsight (that ever wondrous thing…🤣) I can now see how these played their own part in making our journey successful.

So in the ever hopeful spirit of helping others – this is what I learned about how geo arbitrage can unexpectedly help you save money….

First Things First - What Is Geo Arbitrage?

At its simplest and most often quoted, geo arbitrage is simply living in a location with a lower living cost whilst earning an income based on somewhere with higher living costs.

The classic example being the stereo-typical expat retiree. Moving home once no longer tied to a location for work opens up a whole world of places where it is possible to get a better standard of living for the same income.

But you don’t have to wait until you are retired to take advantage of geo arbitrage. The reason why so many FIRE-seekers love it is because it’s the ultimate savings booster.

Living somewhere with a low cost of living whilst earning an income in a high cost area lets you save more big time. I’ve touched on this before in my own journey.

Working part-time in London and commuting home to Norfolk undoubtedly shaved years from our FIRE journey

Earning a London-based wage whilst living in Norfolk meant I was able to save much more each year. The bigger the gap between earnings and living costs, the faster those savings grew.

And that’s a handy way in to move on from repeating well-known advice onto the first of the unexpected benefits of geo arbitrage for us.

Maximising Your Earning Ability

BankerOnFire likes to hammer this point home regularly but it’s one I agree strongly with so worth repeating;

There’s a limit as to how much you can cut costs

There’s (theoretically) no limit on increasing your earnings

At some point, however good at being thrifty and delaying gratification you are, there’s a natural limit to what you can live on. Indeedably does a good job here outlining the issue for an average family in the UK.

The whole point about using geo arbitrage though is that it gives you a way of not being average

And that’s a good thing but let me explain….

The industry I fell into by accident, energy trading, didn’t exist locally after our employee went out of business early on in our journey. I had two choices – either retrain and start again or go where the work is. I choose the work. 

At the start, the uplift in earnings from my previous job to the one I found in London barely seemed worth the painful commute. Yes, it paid a premium to local jobs but the extra hours on a train didn’t always feel worth it.

Roll forwards a few years and a couple of promotions and that balance shifted dramatically. Earnings are similar to investing in that way in that pay increases and bonuses really start to compound. 

Opportunities opened up that would never have been available back in my home town. Working for a bigger global firm competing against financial trading houses and London living costs really started to pay off.

By the time I quit I was earning well over what the average CEO earnt back in Norfolk

And that was on a part-time basis in a by far junior role

Do I personally think it’s fair these kind of roles pay so much more than other jobs? Not really. I never felt like I contributed much to society – the focus was purely creating more wealth for the company.

Am I sure I would never have been able to earn that much staying in Norfolk? Absolutely. And yes, I could have moved to London and saved myself that tortuous commute. But that wouldn’t have let me use geo arb to my advantage and save so much.

However – that’s not the only way geo arbitrage helped me on my path to early retirement. So let’s get on to the next of those lesser known reasons I promised….

A Different Perspective On 'Normal'

This one is something it took me a while to realise. It’s also not something I’ve seen much written about so hopefully a bit more interesting to read about here. 

Working in London, especially in the financial sector, is a very different world. I always thought it felt a bit of a bubble. 

Not in the work itself so much, though that’s true too. But in being surrounded by many people who are money rich, time poor. It tends to lead towards different choices and views on what life ‘should’ have or be like. 

Not everyone of course. But talk of things like private schools, exotic luxury holidays, crazily priced houses, expensive cars and the like were pretty commonplace.

So much so that it often felt like being in a “Super Jones” bubble world

Now as you know neither S or I are especially interested in or impressed by shiny baubles. But it was very easy to see how people got swept up in it all. Setting new expectations of what ‘normal’ should be.

By working in London but living out in the country, I was often struck by the differences in expectations, of hopes.

Again, not everybody, obviously. But by and by, people’s expectations seemed to pretty much match those around them. That whole “fitting in” or “keeping up” thing.

Having a foot in both camps meant I never really felt like I ‘belonged’ to either. The London guys just accepted I was weird for not spending as they did and my Norfolk gang would just accuse me of going ‘posh’ every now and then 🤣

When you aren’t surrounded by a single group of like-minded people, the peer pressure tends to disappear. After all, which group are you trying to fit in with??

That’s a pretty big benefit of geo arbitrage for people who don’t find it easy to be different. 

But wait, there’s more…..

A Natural Upper Limit

It’s not just expectations that changed with the miles but also the opportunities.

Entertaining yourself in London tends, by and large, to involve spending money. Shows, events, gigs…..the whole point of living in London is to enjoy what it offers. And not much of that comes for free.

My London ‘bubble’ may have been an extreme example for sure but people expected to go out more, eat out more. Cash rich, time poor means happy to pay for things to be organised and done for you.

For example, it was pretty common for people to have a cleaner, a child minder etc. A small army to help them survive their busy lives. The cost/benefit entirely worth it from their perspective.

The other world? Definitely the exception, not the rule.  

There’s just different expectations of how life is ‘done’. Of what normal looks like.

Take eating out as an example. Clearly cheap food can be found in London but the price range is naturally much wider with the fantastic choice available.

Whereas a ‘fancy’ meal out in a rural town has a natural upper limit, dictated by the lower average wage of the area. That and the far fewer michelin star restaurants!

Likewise with housing.

The London housing market has a plethora of options above the £1m mark.

Last time I looked on Rightmove, there were only 65 in the entire Norfolk county… 

Whilst much has been written about the advantages of living in an area with lower living costs – that’s not the point I’m probably failing to make here now. 

It’s just naturally harder to spend a lot of money when they are fewer opportunities to do so

Just look at the difference in the shops in the Canary Wharf Mall to those pretty much anyway else. I used to find it hilarious what was deemed reasonable there. I mean, a steak and oyster bar in Waitrose? Seriously?

So again, for those who find it hard not to spend, geo arbitrage offers a natural advantage in helping limit your options.

But I entirely understand the commute involved in adopting this strategy will not be for everyone. I was always mildly entertained (dismayed..)  by those graphs of ‘average commutes lengths’ that came out from time to time. I’d usually be off the scale..

For me, it was a compromise worth it since I knew the goal. A limited time commitment. Especially once I cut down to part-time with only three days in the office, one at home.

It’s all a balance and for me the opportunity really paid off. But will it last?

Will The Geo Arbitrage Opportunity Last?

That compromise of commute length versus savings may no longer be necessary if the increase in remote work opportunities continues apace after the pandemic ‘polite shove’ along the path. 

I’m probably in the middle of expectations when it comes to predicting the future here. Do I think office blocks will be abandoned forever. No.

But I do think most large companies are taking the opportunity to downscale on space needed. For sure. Flexible working, hot desks and the like will be here to stay.

It may be just enough to tempt more people out of the cities. Further lured by the open spaces that were so prized during lockdown.

It will take some time but I wouldn’t be surprised to see more people take advantage of working differently

Especially anyone on the FIRE path 

It’s a less extreme version of the oft-discussed global nomad strategy. Living in Bali, earning in USD. Or GBP. Or EUR. You get the idea.

We’ve tried the part-time nomad thing and it actually works pretty well for us. But the downsides aren’t for everyone. 

A FIRE strategy based on within-country geo arbitrage doesn’t have those same disadvantages

And from my experience certainly, a number of advantages above those usually extolled

Worth thinking about…

So over time – in the same way globalisation is working out – I’d expect the city/rural opportunity to slowly balance out more.

I’m glad we accidently fell into this strategy. Funny how those double redundancies ended up working out so well in the end. Often the way!

Using geo arb really did end up being a big part of being able to retire early. And it looks like we may accidently be at it again as we consider where we want to live now.

When you have (almost) total freedom on where to live – how do you choose?!? Still working on that one!

In the meantime though – I’d be curious to hear if it’s a strategy you’ve considered or have already used yourself? How has geo arbitrage helped you? Or not?!

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8 thoughts on “Geo Arbitrage: Saving Money (Unexpectedly..)”

  1. Hi Michelle

    There’s not many who would do the commute you did and you obviously benefitted financially from it, without allowing the long travel taking its toll on you. Also, it appears that even back then, you already had the FIRE mindset, eshewing the London priced properties and social life and finding contentment in Norfolk.

    You mention moving to live somewhere other than the UK, so would that mean you end up renting the house you built? You wouldn’t sell it, would you?

    1. Hey Weenie. Ha, yeah, I know. At least it was a good chance to catch up on reading – the mobile signal would usually run out halfway home so no more work emails….🤣

      Our house is one of the big reasons we haven’t gone for it yet. It took us so long to build and it’s so personal to us, it would be a real wrench leaving it. I honestly can’t decide what’s harder, keeping it and renting it which means seeing ‘strangers’ living in it. But no, I can’t imagine selling it either so I’ll just have to get used to the idea..

      It’s pretty much why we’re doing the nomad thing for now – half the year here, half elsewhere. Though you know, if it keeps raining in the summer I think it’ll become a much easier decision!

  2. I liked this Michelle and found this very interesting. I’ve always been a sort of chameleon in my life. Taking part in many groups but never feeling like I fully belonged. Even FIRE in a way is like that. I write a blog, but pursuing FI is just one small facet of my life. So this really resonated with me.

    I rented for a long time in a very high cost of living area and just bought in a suburb. I don’t really consider it geo-arbitrage, but I did buy in a much more affordable market. My situation is kind of bizarre in that I rented very cheaply in the high cost of living area, but increased my housing costs significantly to buy in the lower cost of living area… haha. Basically a lifestyle choice to finally get into the ownership game and be able to control my long term housing costs.

    I always appreciate FI people continuing to share their post-FI journey. I bet you have some great stories from your energy trading days.

    Great post and reflections Michelle.

    1. Hey – awesome to hear from you!

      I know right. I’ve had/got a foot in so many different camps I never realised what an advantage it was until much later. I entirely get what you mean. Everyone talks about finding your tribe but for people like us, it’s not just a single set of people.

      And yeah, I’ve been enjoying your house purchase posts. Trust you to have to be different 🤣…I just love the way though that once you start thinking about it all ‘properly’, you can really work out what works best for you personally. It’s one of the reasons we built our own home, to know we always had a safe haven if needed. Really helps with taking other risks.

      Some great stories from energy trading for sure…can I share them…hmm…maybe not…!

      Cheers for stopping by – hope you’ve unpacked all those boxes by now….😉

  3. My version probably doesn’t fit the definition of geo-arbitrage, but it does involve location, job and a huge boost to our finances.
    Working overseas was our thing. My old rule of thumb for an overseas job used to be:
    1. Earn the same or better gross salary as I would in my home country.
    2. Get housing and utilities provided at no cost to me.
    3. Pay either no income tax, or at least a much lower rate of tax compared to my home country.

    This was a big financial win, and helped massively to achieving FI – in hindsight I suspect I got to an FI number in my early forties. Contract conditions do change with the times, so the structure of the package won’t necessarily be the same these days, but there are still benefits to be had.

    Like you say in your post, hindsight is a wonderful thing. I didn’t set out wanting to work overseas thinking about the financial benefits and how it would help me get to FI. It was all a rather happy coincidence, an interesting life that paid well too, yaay!

    1. Hey – it may not be the classic definition but it’s an awesome strategy for sure! I think there’s still a huge opportunity for folk to do the same and tbh, I’m often surprised it’s not discussed more in the FIRE world.

      Working abroad was the one thing that eluded me before I quit, it’s something I came close to once but then we found the house plot and things kicked off that way instead. I think that’s why I’m so keen on trying living somewhere else apart from the UK now – it’s still on my to-do list!

      Yup, hindsight is an amazing thing….but I mean now, clearly I knew what I was doing….it was all a cunning plan as Baldrick would say 🤣

  4. You make some great points here, Michelle.

    Another one to add to the geo arbitrage toolbox is “rentvesting”. This entails renting in a location that offers the lifestyle you wish to lead, while owning property in locations offering better long term growth prospects but where you don’t wish to live in personally.

    Many Londoners couldn’t (and probably shouldn’t) ever afford to buy where they live. Yet property remains one of the most effective vehicles for wealth generation, in no small part to the use of leverage via a mortgage.

    1. “Rentvesting” – love it. Great addition – thanks!

      It’s fascinating actually how options open up once you start thinking about what actually works best for you, not just what’s normally done.

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