Leveraging Geographical Arbitrage to Launch Your Location Independent Business

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Tim Ferriss said it best with the quote above, “Fun things happen when you earn dollars, live on pesos, and compensate in rupees.” What he means by this, is that the money that you earn in a strong currency, like dollars, can go a lot further when you are living in a foreign country and paying rent in pesos, while your business expenses are also in a foreign currency like rupees.

The travelpreneur/digital nomad dream is made possible by the endless possibilities to make money in a strong currency on the internet, and the ability to outsource many of your daily work tasks to people in countries like India, Pakistan, the Philippines, or Peru, where the average worker only makes $255-295usd/per month, and then live in countries with an extremely low cost of living like Macedonia, Ukraine, India, or Colombia.

The definition of "arbitrage" according to Google.
The definition of “arbitrage” according to Google.

By taking advantage of differing exchange rates and making money in a strong currency, like the dollar, we are able to stretch our earnings abroad for a much longer period of time than we would if we worked online and lived in a city like NYC, San Francisco, or Miami. Over the last 5-7 years, there has been an emergence of entrepreneurs who have joined “the new rich” because they understand this life-changing concept.

Personally, I went from renting a small furnished bedroom and shared bathroom with all utilities included in Tampa, Florida for $800/month, to paying $315/month for a master bedroom, private bathroom, and floor to ceiling panoramic views of the city below, with all utilities included in Medellin, Colombia. If I am able to supplement the same income that I was making at my day job in the U.S. with passive income online, all of a sudden I have an extra $485 in my pocket each month just from changing my geographical location. This does not take into account the lower cost of living as well, which would include the cost of food, transportation, taxes, healthcare, etc. After factoring in the cost of living, I am saving a TON of money by moving abroad.

When I go out for a night on the town with friends, I am spending less than $20usd for a delicious steak dinner and multiple drinks, which would hardly cover a burger and a beer in the States. On average, I have cut my food and entertainment costs by 65% by making U.S. Dollars and living in Colombia!

Data according to Numbeo. Click the photo for link source.
Data according to Numbeo. Click the photo for link source.

I no longer need to own a car, I have the metro train, cheap taxis, and Uber to get around. Gone are the days of monthly car payments, insurance premiums, and gas expenses. What many people don’t realize is that car ownership is freaking expensive, with owners shelling out nearly $9,000/year, according to AAA, for the privilege and freedom to drive yourself around when and where you want. No wonder companies like Uber and Lyft have gained in popularity, it’s just too costly to be paying that much for something that sits parked for more than 95% of its useful life.

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Data according to Numbeo. Click the photo for link source.

While I have not had much experience with paying foreign taxes or health care yet, based on my research, I would save 1,615% on my health care costs by living in Colombia compare to the U.S., and cut my personal federal income tax rate from 39% in the U.S. to next to nothing as a self-employed business, if I set up my location independent entity in a country like the Bahamas, Bermuda, the Cayman Islands, Kuwait or the UAE, which is all completely legal and normal for tax-savvy entrepreneurs, no matter what the mainstream media may say.

Quote from NomadCapitalist.com
Quote from NomadCapitalist.com

There are so many cost saving advantages to living abroad while building and growing a location independent business, along with the fact that you will have the chance to network with other like-minded travelpreneurs and have the opportunity to immerse yourself in the local culture and language. These richly diverse life experiences will not only help you create a more successful business in the long-run, but will shape your personal growth as well.

I hope I was able to open your eyes to the basic concept of Geographical Arbitrage with this post. Tomorrow I will go into more depth about finding the perfect country for you and what resources are out there for helping you narrow down all the options out there to just one.

Question of the Day: Were you already familiar with the concept of Geographical Arbitrage? If so, where did you first read about it? If not, what are your first impressions of the idea?

Comment below, I would love to hear from you!