I was into geoarbitrage before I knew there was a word for it. Living in LA was too expensive, so I sought greener pastures in Savannah, Ga. But that wasn’t cheap enough either, so I moved again and bought a fixer-upper in the middle of nowhere, PA, to live mortgage-free and save cash for my journey to financial freedom.
Geoarbitrage might help you reach your financial goals as well. Find out how you can cut back and reduce your monthly expenses by moving.
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What is Geoarbitrage?
Geoarbitrage is the act of moving from a high cost of living area to a low cost of living region to save money. Housing is the number one expense for most people, so finding a way to lower housing expenses is a great way to save money and focus on building wealth.
However, the cost of housing is not the only thing to consider when pondering whether geoarbitrage is the right decision for you.
Here are some pros and cons of moving to save money.
Advantages of Geoarbitrage
There are many advantages to geoarbitrage, especially if you want to embrace frugality and retire early. The main advantage is a lower overall cost of living, but many people choose this life for the tax advantages or other bonuses of living in cheaper cities.
Lower Cost of Living
The most significant benefit of geoarbitrage is the copious amount of money you can save on living expenses. There was absolutely no way that I would achieve financial independence if I stayed in Los Angeles. I realized I could transfer my job to Savannah, GA, and save a thousand dollars each month on my mortgage alone. That’s a tremendous amount of money!
But then, I found another job in an even cheaper city and decided to take geoarbitrage to the extreme. I moved to a tiny town with a bargain-basement cost of living. This transfer substantially reduced my monthly budget, which allowed me to pay off my credit card debt faster and put more money into my investment portfolio (I prefer Vanguard’s index funds).
Buying a Home
You’d have to earn well over $100,000 to “afford” that! And I put afford in quotes because that’s with paying most of your income to your mortgage every month. The so-called experts think that’s affordable, but I do not.
In comparison, the average home price in Savannah is a little under $300,000. That’s way more affordable!
And there are cheaper options available. There are still places in the US where you can buy a house for under $100000. I purchased my home in PA for just $52K. If you want to pursue financial freedom but think it’s out of reach due to home prices, consider geoarbitrage.
Many people chose to geoarbitrage to states without income taxes, like Texas or Florida.
However, Daniel M. Yerger, MBA, CFP®, ChFC®, AIF®, CDFA®, and CCO of My Wealth Planners, warns to look a little more deeply before making that leap. If moving to a state with no income taxes, such as Florida, he advises being wary of other places where taxes can be hiding. Property or sales taxes may be higher to offset the lack of state income taxes.
Therefore, it might be beneficial to find areas with low property taxes. Although housing is expensive in California, property taxes are relatively low. Illinois (especially the Chicagoland area) has some of the highest property taxes in the country. States with lower housing costs and low property taxes include Arizona, Utah, Wyoming, South Carolina, and Louisiana. Use this map to explore estimated property tax rates by state and county.
Lower cost of living areas tend to have fewer people. Although it’s not a financial advantage, it feels incredible to go into almost any restaurant and be seated in less than 30 minutes.
Roads are less busy as well. Unless there’s an accident, I can get to wherever I need to go in less than a half-hour. An easy traffic flow is one of the less-often discussed benefits of moving to a smaller town.
Living in an area with smaller crowds may not have a financial impact, but it can impact your quality of life.
Adjusting to Small Town Life
Many people are hesitant to move because they don’t want to lose out on the conveniences that big cities offer.
I thought I’d have difficulty adjusting to life in a smaller city. I grew up in Chicago and lived in Los Angeles for most of my adult life, so I always considered myself a city girl. But small towns can be just as lively as big cities.
Savannah was the best of both worlds. There are tons of things to do in Savannah, it has a hopping downtown scene, nearby beaches, and all the amenities you would need, but with small crowds and little traffic.
Much of Pennsylvania is much more rural, but the state has a few incredible cities to visit, like Philadelphia and Pittsburgh. Another big bonus is that I was able to buy a home right in the middle of a cute small town. There’s a grocery store, a few bars, and restaurants within walking distance, so I can still go out to eat if I desire.
You can’t get that in any city for 52K!
Are There Any Disadvantages to Geoarbitrage?
Nothing is without its disadvantages, and geoarbitrage is no different. There are quite a few reasons why this system wouldn’t work for everyone. The biggest reason is the lack of jobs, but lack of family support and the act of moving can also be significant deterrents.
If you aren’t financially independent yet, you need to know what jobs are available in your cheaper destination of choice. Unfortunately, high cost of living areas usually have the highest-paying jobs. Median incomes in cities with the most affordable houses are staggeringly low – it’s easy to see why houses are so cheap. No one in the town would be able to afford them otherwise!
The poor job market doesn’t mean that geoarbitrage is unattainable. There are a few things that you can do to make it work. First, you can find higher-paying jobs in these areas with the right in-demand skills. Financial services, medical services, and law are industries that may have openings in most parts of the country.
Second, you can pursue remote work. Many companies realize that remote work benefits both employers and employees. Tasks can be completed without the overhead costs of an office, and employees can live wherever they choose while still getting the job done. Many careers offer remote opportunities, including data entry, writing, information technology, and graphic design.
One final thing to consider is taking a pay cut. Although most people don’t like the idea of making less money, sometimes taking a pay cut is worthwhile for the savings. I took a ten thousand dollar a year pay cut to move to Savannah, and I could still save more money. When deciding if this option is right for you, consider your potential income versus your potential savings.
When telling people that they should move to save money, childcare is one thing that people often don’t discuss. Sometimes, people with young children literally can’t afford to move. With the exorbitant cost of childcare, parents rely on grandparents, aunts, and uncles to help them with childcare while working, and they need that social safety net nearby. Parents also need to weigh the pros and cons of forcing children to transfer schools and consider the quality of schools in their chosen area before moving. None of these are easy decisions.
Parents who must stay put while their kids are young can still consider geoarbitrage as part of their retirement plan. Perhaps moving isn’t in the cards with young children but is realistic when they are older. On the plus side, the decision to wait can provide parents with valuable time to save lots of money for the future move.
Although most costs will typically be lower in a low-cost-of-living area, some prices may be higher, which may blow your budget in unexpected ways.
The rural town in Pennsylvania I moved to was very cheap, but my home was on oil heating, which cost a bundle come wintertime. As someone used to warmer climates, I wasn’t prepared to pay over $1000 monthly to stay warm. The cost of utilities varies by region, so consider the possibilities before planning your move.
Food prices may also be a shock. If you live far away from ports where fresh food is imported, you may pay more in transportation fees for the same food. Gas prices can vary wildly by state, as can restaurant prices, medical insurance, vet bills, and everything else we need to live.
That’s not to say these costs will necessarily be higher. In many cases, they are lower, which means that moving can save you even more money! It’s imperative to do your research first, so you know what to expect.
Family & Friends
The hardest thing about geoarbitrage is moving away from friends and family, even if you don’t need them for childcare.
I’m not going to lie and tell you that it will be easy. It’s not. Yes, technology has made it more accessible. We can face time, talk on the phone, and text, but none of those things is the same as being there.
I’ve been away from my family in Chicago for over ten years, and I miss them daily. I’d love to go to my niece and nephew’s birthday parties, see them for the holidays, and do everyday things with them. But I can’t, because I live too far away.
It was even harder to move away from Los Angeles. The friends I made there will be my best friends for the rest of my life, I’m sure of that. We’ve already visited each other quite a few times.
But I miss being able to go to my best friend’s house for a video game night, and I miss listening to my sister’s mental gymnastics over our favorite strawberry lambic. I miss the ethnic food nights, the weekend get-aways, and the random happy hours. You have to give up these things when you move away, and it’s painful.
The Moving Part
Moving sucks. I mean, really, it’s awful. I’ve moved twice in less than two years, and it’s miserable. Packing, cleaning, and transferring services are all colossal nightmares. Finding a new place to live and deciding what to do with your old home can be even worse.
If you rent, you have to worry about breaking a lease or moving at the right time, and if you own, you have to decide whether to sell it or rent it. All that stuff is taxing and time-consuming.
It’s also expensive. No matter how you look at it, moving long-distance will cost you. Even if you pack your own stuff and use a U-Haul, you’re looking at over $1000. Pods, storage, and moving companies cost even more. Then, you have to pay all the fees for either buying or renting a new place – and good luck finding one if you have pets!
After all that, you still have to pay security deposits, first/last month rents, pet fees if you are renting, closing costs, and down payments if you buy. Whatever way you look at it, a big move is expensive, which may be prohibitive for some.
Many places outside of the United States are far cheaper than the US. A lot of people want to retire overseas to maximize their retirement income.
However, you don’t necessarily need to be retired to take advantage of the low cost of these fantastic places. Instead, you can freelance, work remotely, or even sign up to teach English in foreign countries. Another option is to achieve financial freedom first, so you can work if you choose, but you can enjoy your time if you don’t want to work.
How To Geoarbitrage
If geoarbitrage is in your financial future, you must prepare as soon as possible. Certified Financial Planner Grant Maddox, from Hampton Park Financial Planning, recommends analyzing the cost of living on a few levels: rent costs, median home price, and taxation of retirement distributions by reviewing government websites with comprehensive statistics.
Once you’ve done a thorough analysis and determined where you want to live, you have to decide whether you will move before or after retirement.
If you are considering it as part of your retirement planning, you probably don’t need to worry about jobs or childcare, which can make it a lot easier, but there are items that everyone needs to consider.
Deciding Where to Go
Your first step is deciding where you want to go. If international geoarbitrage is part of your retirement plan, check your chosen country’s entry and visa requirements. Some places welcome US expats, whereas others have stringent requirements for immigration.
Knowing where you will live will help you determine how much money you need to have in your retirement nest egg before moving. Each location has different costs to consider, so be sure to talk with a financial advisor with expertise in your chosen region to ensure your money will last.
Making Your Geoarbitrage Financial Plan
Once you determine where you are going and have spoken to a financial advisor about approximately how much you will need to live and thrive in your new community, you need to make a plan to ensure you have the required money.
Retirees should look at all of their potential income sources, including a 401K account, Roth IRA, pension, non-retirement brokerage accounts, and even social security. Decide where the money to fund the move will come from and how to draw down your retirement account each year to ensure the savings last.
If you need assistance managing your money upon your move, speak to a financial advisor. They can help ensure you have a long, happy retirement within your means.
Pre-Retirement Geoarbtirage Planning
Planning for geoarbitrage before you retire is a bit more complicated, as you have to consider work, and you may not have as many financial resources as a retiree.
Develop Your Work Plan
If you are moving before retirement, you must have a plan for work. Does the area you are looking into have jobs available? Would making less money worthwhile if you could save more? Can you make money in other ways or pick up some side hustles? What will you do about health insurance if you can’t find a job? These are all crucial things to consider.
Ideally, you would secure a position in your chosen area before moving. Use job boards such as indeed to find work all over the US or to look for remote work positions.
Preparing Your Finances for the Move
If you still need to work, you probably don’t have a variety of income sources to pull from to help you move and to sustain yourself for the first few months in your new home. It’s imperative to ensure your finances are in order before taking the plunge.
Start saving and budgeting for the big move. Spend less on things you don’t need now, so you can retire earlier and have enough savings for financial security when moving. Open a new savings account specifically for the move, and put money from your paycheck directly into it each month. Review your spending habits to ensure they align with your priority of moving.
However, don’t get so obsessed with moving that you neglect your other financial obligations. You still need to save for retirement, pay those credit card bills, and consider your long-term financial goals.
All these financial obligations can be challenging to manage. Sit down and create a financial plan to help you keep them all organized. Creating a savings strategy that prioritizes your top financial goals will prevent you from becoming overwhelmed.
Finding Ways to Save
Saving money before moving is key to a successful move. However, finding extra money can be difficult when you live in a high-cost area. That’s why you want to move in the first place!
If you need help finding ways to save, check out our epic resources on money-saving tips. There’s sure to be something in there that will help you save extra money for the big move.
If you dream of geoarbitrage but know you won’t be able to move for many years, consider opening an investment account to fund your move. The rule of thumb is that you shouldn’t have money invested that you will need in the next 3-5 years, but if your move is planned for ten years in the future, it’s an ideal solution that will help your money grow.
The final step is to move. Although it sounds straightforward, moving is always more complicated than it initially seems. If you’re moving to a foreign country, you must have a passport, visa and meet all entry requirements.
You will need to secure housing, a moving company, and any special accommodations for pets regardless of where you move.
Is Geoarbitrage Right for You?
Only you can decide whether geoarbitrage is right for you or not. It was suitable for me because I wanted to decrease my costs as much as possible to achieve financial independence, and I’ve been fortunate enough to find good jobs in cheaper areas.
After three years of living in rural Pennsylvania, I got tired of having no friends or family around and of the cold weather and outrageous heating bills. I decided to move back to a high cost of living area to be closer to my family.
However, I’m forever thankful that I geoarbitraged twice. Selling my house in Georgia gave me a fantastic financial cushion, and living in Pennsylvania for three years allowed me to save and invest a lot of money. I can feasibly retire early to pursue my passions in about a year, even with living in a more expensive locale now. That wouldn’t have been possible had I stayed in Los Angeles.
Your situation and values are unique to you. If you consider all the pros and cons of geoarbitrage before taking the plunge, I’m confident you will make the right decision for your financial future.
Melanie launched Partners in Fire in 2017 to document her quest for financial independence with a mix of finance, fun, and solving the world’s problems. She’s self educated in personal finance and passionate about fighting systematic problems that prevent others from achieving their own financial goals. She also loves travel, anthropology, gaming and her cats.