Geoarbitrage: The Ultimate Travel Hack To Make Your Money Go Further

This week we excitedly welcomed a guest post with Eric from NomadonFIRE. He shared with us his story of how he travels the world while spending less than he would at home by taking advantage of lower costs cities and countries. If you love traveling for cheap, this is definitely one article you don’t want to miss.

Background

I combine the frugal principles of Financial Independence (FI) with the geoarbitrage cost savings of the digital nomad lifestyle. This combination will ramp up your path to FI or double or triple the value of your FI money!

I’m originally from Michigan, but in the past three years, I lived in Austin, TX working as an Operations Manager. For fun, I enjoy traveling, working out, going on hikes, and trying delicious food!

Austin Typical Spending

In early 2016 I received a great promotion and found myself in a new city, Austin, TX! Everything was going great.

My typical savings rate was 60%-70% while working in Austin. I focused on saving on the Big 3- housing, transportation, and food.

Housing- I lived in a lower Cost of Living (COL) area, very walkable but not right downtown, across the bridge in South Austin, and had a roommate to save money. This decision alone saved me at least $600 a month. I was able to get housing down to around 22% of take-home pay.

Transportation- I had a used Ford Fusion, which has recently been paid off. It had well over 100,000 miles on it, but I continued to drive it and funneled the money that was going towards the car payment directly into savings.

Food- I enjoy a nice meal out every once and a while, but mostly I tried to cook at home to save money on food costs.

Automation

One of the biggest keys to all of this was to AUTOMATE my savings. I maxed out my pre-tax accounts (401K and HSA). At the beginning of the month, I automatically deposited money into an online savings account for short-term savings and additional savings into a taxable investment account.

I used Capital One 360 for online savings and the roboadvisor Wealthfront for taxable savings.

Habits

I also worked to build healthy frugal habits and tried to rid myself of my tendency to buy unnecessary items on Amazon. To combat the unnecessary spending, I would add items to my cart and wait five days; at that point, I would decide if I truly needed the item. 80% of the time, the answer was no!

Related articles:

> 16 Super Smart Budgeting Tips For High Cost Of Living Areas

> Stop Living Paycheck to Paycheck: Pay Off Debt and Start Saving Money

Transitioning to the Digital Nomad Lifestyle

Fast forward to the beginning of 2018, I was unfulfilled with my job, and had a poor work/life balance. I was working nights, weekends, and had long 13-14 hour days coupled with a 45-60 minute commute. I was burnt out and unsure of the life trajectory I was on.

After much soul searching and discussions with my friends and family, I decided to quit my job and begin living the digital nomad lifestyle.

This transition allowed me to use the power of Geoarbitrage to reduce my cost of living even further.

Geoarbitrage- Cost Savings on Steroids?

Geoarbitrage is taking advantage of the different values of various currencies, meaning earning in a strong currency like the US dollar (USD) and spending in a weaker currency like the Colombian Peso (COP).

I have been traveling all around Latin America, but for the purpose of this example, I will compare the cost of living between Austin, Texas, and Medellin, Colombia.

According to Numbeo, Medellin, Colombia is 68.38% cheaper than Austin, TX.

You would need around $948.71 in Medellin to maintain the same standard of life that you can have with $3,000.00 in Austin, TX (assuming you rent in both cities).

This was my firsthand experience living in both cities.

Actual Examples

Rent– On Airbnb for Medellin, you can find a beautiful, modern 1-bedroom in the best neighborhood in town (El Poblado) for around $600 per month. A 1-bedroom apartment in Austin in a comparable area of town with great walkability would cost at least $1,600+. (Cost Difference- 62.5% lower)

If you have yet to give Airbnb a try I highly recommend it. Use our link to receive $40 off of your first stay.

Typical Meals– let’s use a Poke Bowl as an example here, because I love Poke. You can get a delicious Poke bowl delivered directly to your door for $12 with delivery and tip included via Rappi. Rappi is a Latin American delivery service similar to Uber Eats, and I would highly recommend it. In Austin, using Uber eats would make this meal cost over $20, at least. (Cost Difference- 40% lower)

Ubers/Transportation-The El Poblado area of Medellin is very walkable, and if you need to get to another area of town, Ubers are extremely cheap. To Uber across town will only be $4-6 vs. $12-16 in Austin. (Cost Difference- 66% lower)

Gyms– I worked out at a nice Crossfit gym right in El Poblado for $66 unlimited for the month. A nice boot camp, Crossfit, or HIIT style gym with group classes in Austin will easily run you $150+ for an unlimited 1-month membership. (Cost Difference- 56% lower)

It’s incredible to see the money-saving power of Geoarbitrage when you compare a beautiful South American city like Medellin with a very high COL city like Austin, TX.

You could comfortably live in Medellin and be in the $1,000-$2,000 monthly spending range vs. the $3,000-$4,000 in Austin.

What would you do with an extra $1,000-$2,000 worth of savings per month!?

Downsides

Living aboard has so much upside for frugality and savings. However, it’s not without its challenges.

There may be language differences, cultural shock, safety concerns, and being away from friends and family. While these and others are valid concerns, I believe they can either be eliminated or mitigated with proper planning and research beforehand.

This type of lifestyle offers so much sense of adventure and is much more enjoyable than my routine based life in Austin, TX; however, it is not for everyone. But if you have any slight interest at all, I will encourage you to look into and test it out!

Budgeting While on the Road

If you want to start planning out a destination for geoarbitrage and estimate your budget on the road, there are a few tools I would highly recommend.

Nomadlist– an excellent site for planning a destination. Gives reviews, neighborhood breakdowns, and crowdsourced COL info
The Earth Awaits– similar to Nomadlist but more detail COL breakdowns and can select low, medium or high budget
Trail Wallet– great app for budgeting on the road, converts cost back to your home currency