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

How to Store Time

This is the first post of a series called “financial excursions” where we will explore how to understand the world better while learning about money and your life. In my view, “financial excursions” are the best way to teach your kids about money. This summer we took our kids for a trip to see one of the largest dams with hydroelectric plant in Switzerland.

We marveled at the large wall, enjoyed the views from its top, learned about its functions and of course I grabbed the opportunity to explain how building a dam is similar to capturing your income streams and save money and therefore time for later usage in life.

Let’s explore our discoveries together.

Lac Mauvoisin

This summer, we went to see the Mauvoisin dam. In Switzerland we are very proud to have the bulk of our electricity production generated by hydropower (59.9%), nuclear power comes in second (33.5%) and conventional thermal power plants (2.3%, non-renewable) conclude the electricity mix.

Switzerland has currently 638 hydroelectric power plants. The largest dam in Switzerland is the 285 metre-high Grande-Dixence dam (canton of Valais), the second largest is the Mauvoisin dam standing at 250 metres (820 ft) tall, it’s the eight-tallest in the world.

The impounded water behind the Mauvoisin dam forms the 5 kilometres (3 miles) long lake with a capacity of 211.5 million m3 and captures the water from an area as large as 167 square kilometres.

The impressive statistics about this dam include of course its capacity to produce energy. Water released from the Mauvoisin dam into several hydroelectric power stations lower in the valley are boosting the Swiss energy grid with 943 million KWh annually!

The dam was also chosen as perfect location of the world-record highest [successful] basketball shot. In 2016 the 28-year-old Australian Derek Herron launched a basketball from the top of the dam, where it fell 180 metres directly into a net placed on the ground below.

Water And Gravity

My last post about waterfalls covered the topic how to build an abundant waterfall of income streams where we have learned how to diversify “getting paid”.

Fact is: The average millionaire has seven flows of income!

It’s good to have the income flows, but what do you do once the “water” comes flowing your way? If you don’t do anything particular, “water” will follow gravity and disappear in the endless oceans where it originally came from again.

Looking at the wild mountain range the kids could see how the mountains are still nicely covered in snow – even in summer. From there, the sun melts the snow into water and as it comes down, energy is set free. This energy, released from water flowing downwards, has been harnessed by humans for millennia. Over two thousand years ago, people in Greece used flowing water already to turn wheels of their mills to ground wheat into flour. Today, we convert this kinetic energy into electricity.

This sounds all magnificent. However, there’s one big problem here: As the water keeps flowing, you must keep using and consuming the energy right on the spot. Hence, how about if you would like to delay consumption? How to prevent money simply from flowing through your life I asked my kids standing on that magnificent dam?

If you are planning for a year, sow rice; if you are planning for a decade, plant trees; if you are planning for a lifetime, educate people.

Chinese saying

Build Your Dam

Of course, standing on one, the kids understood quickly: The best way to stop the water from simply flowing through is to build a dam. Financially spoken, this translates to controlling your spending and taming your tendencies towards increasing your spending as you earn more:

Avoid lifestyle inflation.

Forget about keeping up with the Joneses.

Re-direct a certain amount of your nicely flowing income into a “reservoir” for your future use.

In order to save, you need to build your financial dam in life.

A container or vehicle with a huge wall that can capture your ever-flowing income streams and keep the savings “safe”.

I explained my kids how useful it will be to have all this water saved up once winter is coming. You can then simply open the valve at and get fresh energy as and when you need it.

Simplified spoken it’s the same with money:

Fill your “containers” with money now so you can tap into your savings once you need it.

We shall cover in other posts what to do with your savings as keeping it simply in “money” itself is not the best choice anymore due to inflation though.

I further explained to the kids that the people running this hydro plant can not capture all the water as otherwise it would cause a drought downstream.

The amount of water they let pass represents the “enough” in your life.

How much money is enough, so your life is worth living?

Capture as Many Income Streams as Possible

Once your dam is built, try to collect the proceeds of more income streams into your reservoir. The more sources contribute to your collection, the easier and faster it will be to fill it up eventually.

At Mauvoisin the engineers have built tunnel systems and more deviations to capture the maximum amount of water possible in the area.

At this point you may ask your kids if they feel it usually takes too long to fill up their bathtub at home.

Wouldn’t it be easier to have a warm bath at home if water comes in from more than just one tap?

The more you put in, the faster it gets full.

The more you save, the easier your goal is reached.

Explain it would be the same with money and ultimately buying your time back in life.

Maximize Your Potential

The Mauvoisin system – like others as well in Switzerland – has an extra feature that not many know of and which I truly like.

Somewhat more downstream, there are other, smaller, reservoirs again to re-capture some water. These intermediary lakes are once again reservoirs where even more electricity can be produced as water lets gravity do its job.

Financially spoken this means nothing else than:

Spend your money or time wisely.

Maximise their usage.

Having such intermediary lakes can also be viewed as “budgets”.

Let me explain:

Energy consumption is not the same throughout the day, more of it is consumed during daytime and less is being used at night. In Switzerland we also have a significant energy output from nuclear power plants. As less energy is used at night, why not re-use the anyway produced nuclear power to pump additional water from intermediary lakes back up into the main reservoir?

Why is this like a budget?

Let’s say you plan $40 monthly for a haircut. What if you cut your hair yourself? Then you’ll not be needing the $40 that you’ve prepared already and can put it back into your main reservoir. Read more here what could happen if you start doing something along this idea.

Create Power On Demand

A hydropower plant system is like a battery.

You can capture, save, and release energy with it.

Whenever you need some, you simply open the tap and produce instant energy.

In this last step, combine the lessons above and think of water in terms of money and of money in terms of time.

Time is money.

And money can become time again.

The main take-away my kids as well as you should get from this first “financial excursion” is that it’s worth your while spending/ investing some of your time NOW to create your own battery for YOUR life!

The better your system is built, the easier and more fun your life will get.

Trust this post can help you and your loved ones store some money, energy and ultimately time – the most prescious of them all – so you can live more!

If you have kids, consider taking them on this first “financial excursion”.

If you enjoyed this read please don’t forget to subscribe my blog by email, like my Facebook page or follow me on Twitter in order to not miss any future “financial excursions”!

Now, have fun doing “financial excursions” with your own kids and please share the idea with your friends and other parents!

Stay curious and have fun exploring,

Matt