You know what they say: there’s more than one way to skin a cat!
(No one says this. Who says this? Why is this a saying.)
It’s a gross way of saying there’s more than one way to reach your goal. So if you want to save money faster and you’re feeling like an adventurous, modern-day Viking you would be a good candidate to go aboard for some geoarbitrage.
What is this scary word?
In Lily terms, it’s the nuclear option. In personal finance terms, it means taking advantage of the higher living costs in one particular geographic region, skipping town on that noise, and moving to a different geographic locality where things like rent, food, transportation, utilities are less expensive.
That is what Soaps just did.
For those of you who are new here, this is a brief synopsis of my friend, Soap. I added this portion so no one is missing a piece of the puzzle:
Soaps is one of my best friends. She is a free-spirited, creative genius. She is also the daughter of a very affluent, multi-millionaire family. Her childhood was what one would call pure opulence.
Today, she is in her 30s with a drinking problem. She has terrible health and cannot hold down a stable job. At age 30, she started with $80,000 in refinanced consumer and medical debt and some unpaid taxes as well.
Her mom is her loan cosigner. Although her parents can easily wipe the debt away, they think it would be better for Soaps to learn how to manage her finances herself by learning to live frugally and focusing on her career and education. Both of Soap’s parents fall under what you call…FUMCPWCDJ&RPFs.
Soapy’s parents came to the United States from China in the 1970s, educated themselves, worked very hard, and became successful engineers + entrepreneurs within two decades. Now they want to pass on their successful trading business but to no heir.
Soap was the only heir of choice but she declined the offer to learn the family business repeatedly and her parents have stopped asking. To her, their life work and success was not meant to be her life. It’s not how she wants to live. She is like a Beat Generation character that I’ve only read in a raunchy adventure fiction.
Soap didn’t know how credit cards worked until she was over 17 years old. For 17 years, she didn’t know that credit cards cost real money.
“It was my mom’s card that we could buy anything with and the store gives it to you. I didn’t know it cost money money, I didn’t think about it. I thought the card told the store clerks what a good person you are and they give it to you because…you’re a nice person. Hence the name CREDIT – like good karma = good person = stores will give you stuff. No one told me you had to pay it back with money.”
This is why I am an absolute advocate for teaching personal finance in both home and school. That and learning to say “no” to children so they would never end up in an environmentally induced bubble. I started a basic personal finance series in hopes of spoonfeeding her frugal slices of life. My goal was for her to read and apply some of the traditional ideas inspired off Suze and Ol’ David Ramsey. I believe her upbringing was so “generous” (in comparison to mine) she ended up with bad self-control and money management skills.
Read the previous posts in Soapy’s Odessey:
Geoarbitrage for Debt
I am a fan of geoarbitraging. It seems like an underutilized money hack especially if you have short-term money problems. Fine print though, it’s for those without a geographic obligation such as work and family. If you are able to work location independently and want to save money, as fast as possible then a savvy move would be to take your first-world salary, go abroad, and live like a modest prince for cheap while stocking up enough in savings.
Most smaller cities in China will find first-world American salaries generous in comparison to the yuan salary (Chinese dollar).
The next thing you know you’re living in a pimped out mansion in a third-tier, small city in China!
No, no – it’s not that easy. China limits multi-entry tourist visas to 90 days and you would have to leave and can re-enter after a certain time.
Soap works as a seasonal freelancer and her work is greatly affected by seasonal changes. After business expenses, she is making a few dollars above Canadian minimum wage. I’ve minorly brushed up in the past that we have been in business together at one point, very briefly, that was not successful.
A month back, Soap was at life’s crossroads. She is about $80,000 in debt the last time I checked with her. Although her parents can pay it off easily, it was understood after her last bailout 3 years ago, it would be her last bail and they stand firm on that decision today.
Compare to 2 years ago, personally, she definitely has become better at controlling her finances. I’m going to take 50% of the credit for that by the way!
But it’s not really enough.
Here’s the debt trap, it’s not enough if you dug yourself that deep. Take for example high-interest rates credit card debt or unshakeable student loan debt, yuck! Debt doesn’t have to give anyone second chances by the way. Now we’re back to basic personal finance, the two subjects that are so wholly simple and basic:
How do you get out of debt?
1. Cut expenses.
2. Make more money.
Besides lucking out on an inheritance or robbing a bank, those are pretty much the two choices for 99% of people out here.
Naturally, if you can’t cut your expenses and you can’t make more money then the debt stays where it is or get even bigger and that is where Soapy’s problem comes in. That’s where a lot of people hit that familiar old problem.
For all the years that I’ve known her, Soapy has just been tangling between “almost barely bankrupted” and “barely bankrupted.” There could be progress made, then she gets sick out of nowhere and right back down the debt hole she goes. You can’t save up enough money to better your situation because it’s locked in keeping interest and debt collectors at bay. Not to mention there’s the tax bill that hits her as a freelancer. Trying to somehow increase an unstable, freelancer’s income, account for taxes, late bills, late rent, find food etc. by yourself with is tough.
When she did put the pedal to the metal and doubled up with a normal 9 to 5 job on top of freelance work, her commute extended, her health declined, and her freelance work quality declined as well. I felt bad for her, I was lucky if she had the time and energy to send me a text. And wouldn’t you know it, after the second week, she fell ill with a lung infection and had to call the temp job quits.
Rinse and repeat, year after year, the story repeats itself.
There are moments when Soap tells me her master schemes on how to hustle some money and I shake my head in horror. But this instance, I was fully on board with her idea of geoabritage. She didn’t know that fancy word. She just told me her grandparents invited her to vacation for 2 weeks in China but unbeknownst to them, she’s wasn’t going to be coming back with them!
There were a few bumps in the road I was worried about but it’s this nuclear option or keeping her on that miserable debt treadmill so I gave her my blessings.
|Item||Costs in China (YMMV)||Original Costs (Monthly)|
|Housing||$0-$200 per month||$1,000|
|Transportation||$2-$5 per taxi ride||$300|
|Food||$100-$300 per month||$2,000|
|Health Care||$100 per doctor trip||Unspeakable|
|Internet + VPN||$150 unlimited mobile data per month + $10 VPN||$0|
|Electricity||$10 per month (The only service she has.)||$0 (with rent)|
Cost of living in China, just like the U.S., fluctuates wildly depending on the specific location.
*Chinese first-tier metropolis cities like Bejing and Shanghai are the American equivalents to Washington, D.C. and San Francisco. These overcrowded Chinese cities are VERY expensive unless rent became free. Geoabritaging in larger metropolitan cities also come with health issues attributed to the air pollution.
*A large second-tier city is something along the lines of Guangzhou and Shenzhen.
*A third-tier Chinese city like Shenzi is the one Soap currently lives in. Shenzi most actively reflects the power of geoabritage in a small-sized city for those who are location independent.
Soap’s sleep and wake schedule are pretty backward now but I was able to get in contact with her with WeChat (Chinese messenger.) She gave me a quick rundown of her expenses in her a small “third tier” city in Shenzi, China.
Soap lives rent-free in a semi-abandoned building belonging to her parents family. It has been sitting empty for 2-3 generations. Her apartment has no shower or kitchen. It might sound really weird to Americans to have an apartment without a shower and kitchen but that’s how old the property is. There isn’t really an “up to building code” standard in China. No one is going to fret about how many inches the handrail needs to be away from the wall (which was something incredibly stupid we had to deal with in Seattle…) but in another sense, no one will bat an eye if you have no running water or heat.
But it’s free!!
Her small room in a split house between 4 other roommates in Toronto costs about $1,000 a month so that’s a $1,000 in the pocket.
The Shenzi city rent costs (at the upper crust) only $200 USD per month. That $200 USD will get you a really fancy, furnished apartment with your own shower and kitchen.
Most people walk and bike, which is a cost-effective way to get around. There are city buses that will set you back a few quarters. A private taxi service (similar to Uber) takes you anywhere in the city for $5 USD. That’s considered expensive in China because petrol gas costs are high; however, from a tourist perspective, a private taxi in China is about the same price as a round trip bus ticket back home and it’s much cleaner and faster.
Soaps food expenses are usually ridiculously high for just her. She met with recent success in bringing her overall food costs down. Unfortunately, not long after she implemented my grocery hacks, she got sick again and slid back down…again. Typically, she spends about $1500 on food and eating out alone – just herself. If you include her favorite Jack Daniel’s and Red Bull, then kick it up to $2,000 a month.
In China, she lives mostly on street food. The street markets in China are super inexpensive. You can get street skewers for a few pence. For $2 to $3, you can eat from any street vendor until you’re stuffed. Her food bill is on the higher end of the local spectrum because her free apartment has no kitchen or sink to clean up. A hot pot buffet in China runs about $10 USD (there’s no tipping in Asia in general.) Her dining out bill comes out to be about $200 USD a month compare to her $2,000 bill in Canada. But western food, even bad western food in China is expensive. A Westernized McDonald meal in China will run about $6 USD for a Big Mac meal (with bubble tea instead of soda).
So I mentioned before, her apartment building is old and there’s no kitchen or shower…which means that she needs to find public bathhouses for personal hygiene. Although it is not a lot of money for her to go to a public bathhouse, bathhouse costs do add up. Back in the states, Soapy bathes 3 times a day, that’s her habit but she can’t do that anymore.
The Chinese bathhouses don’t match exactly the definition of bathhouses in the states. It’s view more as leisure recreation activity like a spa with a pool etc. Public bathhouses also serve food for 3 meals a day. For entry to a bathhouse, its around $10-20 USD and that includes 3 full meals and a bath.
The one huge downside of arbitraging in China is if you have a weak immune system. Her exposure to street food cleanliness and allergies certainly don’t help.
Within a day of landing, Soap was hit with a cold and the stomach flu. She spent two days vomiting and the rest of the week with a bad cold. As she got better, she was hit with an ear infection. That took another week to recover…and then she was hit with a mild cold after that. Finally, her immune system stabilized but she missed over 2 weeks of “family vacation” waiting for her immune system to adjust. Apparently getting sick like this happens to every time she re-enters China.
During that time, she refamiliarized herself with the cost of a typical doctors trip. The good news is if you want to see a doctor for anything, it will cost no more than $100 USD per visit. That includes everything too – the doctor appointment, medicine, shots. It’s manageable on her arbitraged first world salary.
Soap would make a great vloger!
Good internet where she is is expensive. She pays $150 USD a month for unlimited on the go internet, we were able to video chat without disruptions. She needs a VPN for work thanks to China’s great firewall and that’s an additional $10 USD per month. Again, depending on how you frame it…if a fancy apartment cost $200 USD per month that means Internet might be a costly luxury for some.
Electricity is Soap’s only utility since she’s living without a kitchen and shower. It’s cheap ($10 USD/month) but it’s a bit scary to use. Nothing is guaranteed to be “to code” especially in a semi-abandoned family house so it pays to be extra careful.
The outlet wattages are also higher in China compare to the states so if you get zapped, it’s not going to be a tickle – it might just knock you dead.
Those numbers are pretty much her main expenses in China. I don’t know about you but after learning anyone could get a fancy penthouse for $200 per month, I’m drooling. Even if you’re only allowed in for 90 days, that’s some frugal lodging! Needless to say, she will be saving close to $3,000 to $5,000 a month if she chooses to geoarbitrage in China on her first-world salary. If she stays there, the chances of her knocking out her loans are very good.
If she was back here, she wouldn’t be able to get that jump start going because her debt would simply keep her running in place. And I think that’s the most important thing people forget about those who carry debt. No judgments here. I know that if I was in her position I would absolutely geoarbitrage a hundred times over. I would grit my teeth for 5 years and come back with some savings and a career plan so I can move on with my life.
Readers, has anyone relocated themselves overseas to save more money? What was your experience? Would you hack living in a small city in China to turbocharge your savings? Is not having a shower or kitchen a deal breaker?