The Impact of your Location on your Finances

impact of your location on your finances

Recently I have read/heard a lot about how a change in your residing location can assist in your financial independence (FI) journey. The first was a podcast which featured Bob from touching on the subject. He was discussing dual citizenship with his diverse family and upbringing as a tool to achieve FI earlier while being location-independent. The second was a short interview with the frugalwoods family. They showed that moving to Vermont (I love cheese and craft beer so why not?) while renting out their property in Boston allowed them to achieve FI earlier and in different circumstances. So, is this a new take on achieving FI?

Pure Cost

This is however not new as people have been flogging to other areas for a long time to make an income in a certain area only to live in another. In South Africa it is very popular for young people to go and work in the UK for a couple of years with the dreams of making a lot of money and bringing it back to enjoy the far lower cost of living back home. In the example in the podcast Bob lives in Vancouver. A city with very high property prices which already takes up a large portion of his disposable income. Moving to a different country can drastically reduce that cost of his residence and overall living while generating the same income from his investments. The same can probably be said for people within the US (or most developed areas like Europe or East Asia) as there is such a large difference between property prices depending on location. In theory changing location can reduce the time it takes to become FI in relative terms.

I have touched on this in a couple of posts. Just using the information from my relative wealth post if Bob where to move from Canada to Taiwan their cost of living would be around 28% lower. Taking the Big Mac example, he would pay a whopping 48% less to purchase one (just buy your iPad in Canada before you leave). All of this while generating an income from his investments in Canada.

In summary looking from a pure cost perspective this can be a way to make a short- or long-term geographical move while becoming “more” FI for the period.

The other side

All of these examples contain people living and generating income in relatively stable countries. I believe that the probability of the US and Canada being successful nations with stability in the medium term is high. People love certainty and, in these examples that foundation has been laid quite well.

In the case of South Africa, I would say the probability of success and relative stability in the medium term is higher than 50% but not close to that of many developed nations. In the comments of a recent post by Stealthy Wealth on capital gains tax on foreign investments many people state how they have tried to diversify investments to these more stable countries.

So, taking this reverse situation of residing in a relatively low cost of living country (Taiwan and South Africa score equally on the index), is there another use for geographical independence? It begs a very important question for people in this situation to potentially achieve true FI.

Is it not a requirement?

It begs the question, living in such a situation, is it not a requirement to have dual citizenship to be truly FI? Is the goal not to have a high number of income generating assets in more stable environments while living in a lower cost of living environment? If all your income generating assets are in the less stable country are you truly FI. Should you not at least have a base in a more stable environment, looking at it as an insurance policy?

All of these are difficult questions which I mostly do not have the answer to. What I do believe is that you should make good conscious choices about how to address them and take a holistic view:

  • Always try to up your global purchasing power. By following your basic personal financial plan while saving and investing a larger portion of your income. Consistently beating your local inflation through investing will increase your global purchasing power and put you ahead of the majority of people, get richer every month.
  • Diversify and try to increase your long-term stability. Choose reputable financial institutions to invest at or make sure you are knowledgeable when buying assets like properties abroad. Having good diversification, including investing in your country of residence can provide a good balance of long-term growth, tolerable volatility while potentially reaping higher returns.
  • Make peace with where you are for now. If you have a plan to relocate that is fine. But I believe there is a reason why you are where you are at the moment. Be grateful for what you have and where you are, it will change your outlook on your finances.
  • Have hope. Strive to have hope for your country and direct society. If you believe there is no hope then you have already emigrated psychologically.

Do you think dual citizenship or some form of geographical independence is a requirement for FI?

Always grow your wealth for tomorrow while being content with your wealth today.

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