Unlocking Geographic Arbitrage

If you have ever travelled before, you most certainly noticed how price levels for the same thing can be hugely different depending on where you are. This may even happen within the same country.

Why is that?

[Income] earning potential, taxes, rent, everything is changing depending on where you are. It’s all about supply and demand. Some differences might also be linked to currencies, strength of economy, competition, or different methods of taxation.

Take away 1:

Things have different prices at different places.

Spend your money at the right place!

Done the right way, geoarbitrage can unlock tremendous potential.

It is a powerful tool to shorten your way to [an earlier] retirement and even without planning for the ultra long run, it can immediately boost your purchasing power to new heights, improve your quality of life and give you more bang for the buck.

Simple geoarbitrage starts with earning your money in a high earning location while spending it in a low cost of living area. More complicated versions thereof will go into details about where to source for what and optimize for the best outcome across all financial dimensions.

Take away 2:

Salary levels for the same work differs tremendously depending on where you work.

Earn your money from the right location!

The more flexible you are in terms of travel or location independence, the more you can take advantage of both sides and the higher your potential to really taking advantage of geoarbitrage.

The third area where geoarbitrage is highly underestimated is: Taxes.

In Europe tax levels even differ from village to village! Imagine how vastly different the various tax codes can be if you increase the universe of potential tax domiciles and regulations…

Multinational corporations have improved their “play” in this game to perfection. For “natural persons” you should take some time to explore differences in terms of income, property, asset, inheritance, retirement-benefit taxation – you might be astonished what’s possible.

Take away 3:

Learn how to unlock the tax-code and optimize your situation accordingly.

Geographic arbitrage – or “geoarbitrage” in short – is the concept of identifying differences in prices, earnings and taxes while finding ways to exploit them.

Geoarbitrage in the Heart of Europe

Geoarbitrage may be possible right where you are now. Take Basel, Switzerland, as an example.  Here my family lives. From our family home we can reach either Germany or France in as little as 10 minutes by car: We can go shopping in three (!) different countries – in just less than half a day!

Since we’ve been living between Singapore, Switzerland and Taiwan and go crossborder grocery shopping in France and Germany, our kids have realized from quite an early age that it truly depends on “where to get what” in order to get “more bang for the buck”.

The most common example to compare price levels is the Big Mac Index.

Big Mac Index

The most famous measure to compare purchasing power globally is the so-called Big Mac Index. Since a Big Mac has to be the very same no matter whether you’re ordering it in America, Europe, Asia or Africa – it’s one of the very few items you get to purchase at the same quality across the globe.

Of course, a Big Mac may cost a very different price depending on where you buy it. Again, this has to do with many factors, mainly: purchasing power, salary levels, rental costs, availability and prices of ingredients at required quality levels.

Click here to get to the interactive page of the Economist about the Big Mac Index.

In the Basel area a Big Mac costs around €4.79 (or USD 5.60) in Germany or France while the Swiss price for the very same product is CHF 6.50 (or USD 7.05) – this is a whopping 25% price difference!

My son is a big fan of comic books and loves to read Disney comics. The german version “Lustiges Taschenbuch” sells in Germany for €6.50, in Austria for €6.70 while in Switzerland is costs you CHF 12.50 – the last price is about 78% more considering the FX rate. 78%!

Since my son uses his own money to buy these books, he regularly insists to take the 10 minute extra-trip to Germany so he can boost his purchasing power by 78%. Not bad!

Living Geoarbitrage

We enjoy visiting restaurants, pharmacies and more just across our border. Some people also travel for dentist visits, haircuts, and car repairs. The other way round our German and French friends come to visit Switzerland to refill their gas. Many also like to work in Switzerland as the salary levels are higher.

This three-country area is highly interesting for an economist like me.

In recent years and due to increased online shopping habits, the Germans have even started a wonderful business – its name is translated to “delivery address service center” (original name: LAS Burg). If you sign-up with them, you’ll get a “German delivery address” just 1 minute beyond the border which you can use for German online shopping at much lower prices. Once your parcel reaches, you’ll get a email notification and you have a few days to pick it up. The small cost for this service is totally worth it.

The internet allows you to purchase goods from a global market. You just got to understand any potential delivery costs or tax implications depending on where you get your goods delivered to.

Digital nomads live geographic arbitrage as they can easily work and live from anywhere as long as they still are somehow connected to the internet. In places such as Bali or Thailand the purchasing power of your $$$ will be tremendously boosted – sometimes you get up to 5-7 times more for your money depending on what you use it for.

You could now be living anywhere and selling your goods and services everywhere.

That’s the true potential of unlocking geoarbitrage.

Online Tools

The best part about geoarbitrage?

You can start comparing different options and scenarios right away from the comforts of your home.

Check out this amazing online tool to plan geographic arbitrage.

Discover a world full of adventure: The Earth Awaits!

On this website you can create custom lifestyles, compare and share cities with friends and family, and much more! The creators want to help you travel the world, live better, retire early, and have amazing adventures.

Another great tool is the UBS Prices and Earnings tool:

The bank researched 128 goods and services, and earnings for 15 professions in 77 cities worldwide. More than 75,000 data points were collected and included in their calculations. The result of this study is the so called “prices and earnings report”, a global comparison of the cost of living in cities with separated findings for prices, earnings, purchasing power and working time.

Explore the data based on one of these factors, you can find out how many hours someone must work in order to purchase the latest iPhone, a loaf of bread or, yes, the Big Mac itself.

Conclusion

For anyone on their journey to financial independence or to living a wealthier life, geoarbitrage is one of the most powerful tools to reach your goals sooner.

Please take your time to explore the options available to you.

Trust me, it’s a immeasurable lifehack!

If you found today’s post helpful, kindly consider sharing it with your friends and don’t forget to subscribe my blog by email, like my Facebook page or follow me on Twitter.

Happy lifehacking!

Matt

5 Replies to “Unlocking Geographic Arbitrage”

  1. Totally plan on living it up in South East Asia for about 6 months every year once we are ‘retired’. Such a thought about topic by us, great to hear from someone that’s put into practice!

    1. Dear Mrs FDU,

      We’re living between Singapore, Taiwan and Switzerland since 2017. Geoarbitrage works with small things (online shopping, crossing borders in Europe) as well as for big ticket items (food, housing, transportation). The more freedom you create for yourself, the more options will get available and the easier (and hopefully more enjoyable) it gets! Where in South East Asia do you guys plan to spend time? There are so many great places there! All the best!

  2. The prices of books and some other OTC drugs are ridiculous in Switzerland. But there are limited services for people to take advantage of the lower prices in Germany if you are not living near the border.
    I have seen that IKEA furniture prices also differ quite a lot even though the FX is only 1.1.

    We try to do our shopping whenever we are abroad, like clothes, essential stuff.

    1. Dear Yasi,

      Thanks for stopping by!

      Yes, Switzerland – like Singapore – are both indeed high-price-and-earning-islands as compared with their surroundings.

      We have learned how to navigate this environment and found many ways to arbitrage.

      Cheers,
      Matt

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