Does Geographic Arbitrage Make the American Dream Irrelevant?

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“The American dream is a sham. Because I had the house, the cars, the kids. I did all of that, but even achieving those things, it still seemed like it wasn’t enough,”

Adalia Aborisade, a 48-years-old former teacher from Texas

I recently watched a CNBC video called “Why Americans Are Relocating to Mexico for a Better Life” and it really resonated with me.

The story that jumped out at me the most is of Adalia, a 48-year-old former teacher from Texas, who made a life-changing decision to move to Mexico City back in 2017. Even though she took a pay cut, going down from $60,000/year as a teacher to $38,000/year as an entrepreneur, giving up a 3,623-square-foot house in Texas with a $2,612 monthly mortgage made her much happier.

Also, despite not having a 6-figure job, she managed to save $545,000 USD over the 19 years she worked as a teacher, which would generate $21,800/year by the 4% rule. Given that the average salary in Mexico City is only $20,000 USD/year, this is easily enough for her to live on. Her $38,000 USD/year business income gives her lots of wiggle room, even though it’s a 37% pay cut from her job.

While everyone else is complaining about inflation and the cost-of-living crisis, Adalia improved her quality of life despite giving herself a major pay cut!

And the benefits of geographic arbitrage, isn’t just financial. Adalia says her quality of life in Mexico is much better than the US because her anxiety has gone down. Despite Mexico’s high crime rate, she feels less stressed about racism and dying from gun violence from a routine traffic stop. Plus, she no longer worries about medical bankruptcy, since she pays $1800/year for Mexico health insurance, far less than what she paid in the US.

She says: “the amount of peace and ease that I have in this life — I would not trade that for the world.”

“The thing in my life that has changed the most is how I think about work and how I think about leisure. Things are just a lot more laid-back than in the U.S.”

And she’s not the only one. Keith Brown, another teacher featured in the video, even gave up his 6-figure paycheck in NYC to move to Mexico. After the murder of George Floyd, he said, as a Black man, he didn’t want to live in “a country that is so steeped in negativity and racism.” His dream is “to be treated like everyone else, to be treated fairly, equally, and to have peace”. Mexico City is where he’s been able to achieve that, and now he has time for himself.

It’s not just visible minorities who no longer believe in the American dream. Families no longer do as well—like this family who moved to Portugal from the US to give their kids access to a safer education, without the constant worry about school shootings.

They lived in Austin Texas and decided to move to Portugal with their teenage daughter and son in 2021 after both experienced anxiety from constant active shooter drills at their school. Despite the adjustments from having to learn a whole new language and culture, their lives have become less fearful, more relaxed, and their kids say they would only return to the US if things improved.

All these expats have learned that they can improve their quality of life while beating inflation by using the power of geographic arbitrage. To see how it reduces your time to FI, let’s look at an example.

Let’s say you live and work in NYC. The average gross salary in NY, according to CNBC, is $78,000 USD/year. The average cost of living in NY for an individual, according to Numbeo is $1,639.7 USD/month (cost outside of rent) + $4,081.75 USD/month (1 bedroom in city center) = $5721.45 USD /month or $68,657.40/year.

This means that after taxes, you would only make $56,339/year, which wouldn’t be enough so you’d never become FI.  

However, if you were to work remotely and live in Mexico City, the cost would drop dramatically to $746.5 USD/month (cost outside of rent) + $997.14 USD/month (1 bedroom in city center) = $1743.64 USD/month or $20,923.68 USD/year.

This would allow you to save $56,339 – $20,923.68 = $35,415.32/year and your FI number would be $20,923.68 * 25 = $523,092, which means you would reach FI in:

Year Balance Contributions ROI (6%) Total
1 $0.00 $35,415.32 $0.00 $35,415.32
2 $35,415.32 $35,415.32 $2,124.92 $72,955.56
3 $72,955.56 $35,415.32 $4,377.33 $112,748.21
4 $112,748.21 $35,415.32 $6,764.89 $154,928.43
5 $154,928.43 $35,415.32 $9,295.71 $199,639.45
6 $199,639.45 $35,415.32 $11,978.37 $247,033.14
7 $247,033.14 $35,415.32 $14,821.99 $297,270.45
8 $297,270.45 $35,415.32 $17,836.23 $350,521.99
9 $350,521.99 $35,415.32 $21,031.32 $406,968.63
10 $406,968.63 $35,415.32 $24,418.12 $466,802.07
11 $466,802.07 $35,415.32 $28,008.12 $530,225.51

11 years!

So, by moving to Mexico and working remotely, you’ve gone from never being able to retire to retiring in just 11 years!

That’s how powerful Geographic arbitrage is. An average person making an average salary can pull off FI in about a decade, without needing a high-paying engineering job, or cutting your expenses to the bone. By moving, the FI dream becomes a reality.

We’ve realized the power of Geographic Arbitrage years ago and have been touting its benefits ever since, but not everyone’s job is as portable as ours. All that’s changed in the past few years.

As horrible as the pandemic was, the one silver lining that came out of it is the normalization of remote work. Back in 2015, when we left our jobs to travel the world, digital nomadism was unpopular, and it was legally in a gray area. Most digital nomads simply travelled around on tourist visas, and there were stories of co-working spaces being occasionally raided by the police. Now, countries have realized that digital nomads don’t steal jobs from locals, and are willing to spend money and pay taxes, so there are now more than 25 countries that have created some form of long-term stay visa for remote workers, including Mexico. Plus, remote jobs are popping up more and more as work increasingly moves online.

Case in point, Wanderer was contacted recently by a recruiter for a data analyst job, despite not working for the past 10 years and having a resume gap as wide as the Grand Canyon. Remote jobs are out there and more attainable than ever.

This makes me more confident that even if you haven’t reach full FI, you can use that FU money you’ve accumulated to switch jobs, work remotely, and use geo-arbitrage to not only have a more relaxed life but a safer one. That way, even if the remote job goes away or your business income fluctuates, your FU money portfolio will provide enough income to live abroad comfortably.

As Adalia says, “It’s not about accumulating wealth. It’s about having control over my time.”

What do you think? Would you be willing use geo-arbitrage and remote work to have more control over your time? What would be your biggest fears? What would be the top 3 things holding you back?

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